5 Dividend Growth Stocks That Outperformed S&P 500 Over 5-Year Rolling Periods

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5 Dividend Growth Stocks That Outperformed S&P 500 Over 5-Year Rolling Periods

seekingalpha02-20

Beating the S&P 500 is difficult due to skewed market returns favoring a few high-performing stocks.5 dividend growth stocks that have excellent track records, outperforming the S&P 500 over 5-year ...

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Dilok Klaisataporn Beating the S&P 500 The S&P 500 Index is arguably the most popular equity index in the United States, it is also one of the most difficult indices to beat. Many investors, professionals and amateurs alike, have tried accomplishing this feat for decades and most come up short, especially when measured over longer timeframes. One reason why beating the S&P 500 is so difficult is because the skewed pattern of market returns stacks the odds against you. Average S&P 500 returns are driven higher by just a handful of high-performing stocks while the majority of stocks included in the index under-perform. And simple rules of probability tell us that when few outperform many, the odds of success become unfavorable. Informed investors don't select their stocks randomly, they follow proven strategies, perform thorough research and measure intrinsic value. Yet this process still requires the investor to not only find the right stocks to invest in but also to determine the right time to enter and exit each position. What if I told you there may be an easier way to invest and beat the S&P 500. One that doesn't require nearly as much research or even actively managing your portfolio. There are a handful of companies that have great track records of outperforming the S&P 500, and these winning streaks extend for years, even decades. What if the answer to securing above-average, long-term, market beating returns is as simple as finding such companies and hoping aboard for the ride. I'm going to show you 5 dividend growth stocks that all have beaten the S&P 500 index over rolling 5-year periods since their inception. Definition of Beating the S&P 500 The definition of beating the S&P 500 can have multiple meanings. You could outperform the index in a single trading session, over the span of a week, month, year or since the beginning of your investing journey. You are unlikely to find one single stock that will finish ahead of this index every single day, far less every week or every month. Conventional wisdom tells that we should not invest any money in the stock market we may otherwise need in the next 5 years. Should we not also measure the success of our investing results over the span of time? Some investors consider 5 years to be a long time, however investors with a long-term mindset may also consider 5 years to be relatively short. The 5 dividend growth stocks I will cover today all have outperformed the S&P 500 over 5-year rolling periods, measured at the end of each calendar month. I will cover them in order from the shortest winning streak to the longest. Zoetis (ZTS) The first dividend stock on today's list is Zoetis, a pharmaceutical company that focuses on animal health. The company went public in early 2013, which gives it 132 full calendar months of returns. On average Zoetis has returned 1.61% per month, relative to 1.13% for the S&P 500, a 1.42X faster rate of growth. The 132 calendar months of returns equate to 73 unique 5-year rolling periods. The chart below displays all of the 5-year rolling returns for Zoetis and the S&P 500. Created by Author Here is a chart showing just the margin of outperformance. Created by Author As you can tell from this chart Zoetis gained steam in 2018 and 2019, ultimately reaching its peak outperformance in late 2021. More recently though it has been losing steam and appears to be on pace to end its perfect track record. Here are a few stats from the dataset:  Worst 5-year return was 77.39% (October 2023) Best 5-year return was 399.36% (December 2021) Average 5-year return was 213.30% Worst margin of outperformance was 18% (January 2024) Best margin of outperformance was 262.91% (December 2021) Average margin of outperformance was 128.66%  Let's take a look at how attractively valued Zoetis is today.   Created by Author The image above shows three unique valuation models for the stock. Dividend Yield Theory provides the most favorable valuation, suggesting Zoetis is potentially 26% undervalued. The P/E multiple valuation isn't quite as generous but still suggests Zoetis is potentially 4% undervalued. The FCF/per share multiple, on the other hand, suggests Zoetis is potentially 16% overvalued. Averaging all three valuations we arrive at a potential 8% undervaluation. The suggested fair price range is between $162 and $257 with the average being $205. Broadcom (AVGO) The second dividend stock on today's list is Broadcom, a semiconductor company that focuses on semiconductor solutions and infrastructure software. The company went public in late 2009, which gives it 173 full calendar months of returns. On average Broadcom has returned 2.97% per month, relative to 1.15% for the S&P 500, a 2.59X faster rate of growth. The 173 calendar months of returns equate to 114 unique 5-year rolling periods. The chart below displays all of the 5-year rolling returns for Broadcom and the S&P 500. Created by Author Here is a chart showing just the margin of outperformance. Created by Author The chart shows us that Broadcom maintained a healthy lead over the S&P between 2014 and 2019. The first sign of weakness started shortly prior to the 2020 pandemic crash, but ultimately Broadcom recovered nicely in the post-pandemic bull run. This modest level of a healthy sustained margin held true until mid-2021. In the 2021-2022 market pullback, Broadcom once again saw its margin of outperformance decline. More recently the stock has outperformed the index significantly with the margin of outperformance climbing back to pre-pandemic levels. Here are a few stats from the dataset:  Worst 5-year return was 110.41% (September 2022) Best 5-year return was 813.28% (November 2017) Average 5-year return was 399.76% Worst margin of outperformance was 52.68% (September 2022) Best margin of outperformance was 705.91% (November 2017) Average margin of outperformance was 310.56%  Let's take a look at how attractively valued Broadcom is today.   Created by Author All three valuation methods suggest that Broadcom is potentially overvalued right now. The most reasonable valuation comes from using the P/E multiple, while dividend yield theory and the FCF/per share multiple valuations suggest Broadcom is grossly overvalued. The share price rose sharply in 2023 and into 2024, diverging from historical multiple, but partially supported by the recent increase in EPS. Broadcom appeared to be much more attractive in late 2022, supported by all three valuation methods. Today, it appears to be grossly overvalued, propelled by the boom in the semiconductor industry fueled by growth prospects in Artificial Intelligence. Visa (V) The third dividend stock on today's list is Visa, a payment technology company that operates the largest global credit card network. The company went public in early 2008, which gives it 190 full calendar months of returns. On average Visa has returned 1.79% per month, relative to 0.95% for the S&P 500, a 1.88X faster rate of growth. The 190 calendar months of returns equate to 131 unique 5-year rolling periods. The chart below displays all of the 5-year rolling returns for Visa and the S&P 500. Created by Author Here is a chart showing just the margin of outperformance. Created by Author The chart shows us that Visa's track record of beating the S&P 500 started out well and held steady for about 7 years or so. Leading into the pandemic the margin of outperformance began to weaken, this downward trend continues through today. Currently Visa stands at its lowest level of outperformance relative to the S&P 500 and is on the verge of seeing its perfect run come to an end. Here are a few stats from the dataset:  Worst 5-year return was 61.97% (September 2023) Best 5-year return was 375.80% (February 2014) Average 5-year return was 208.07% Worst margin of outperformance was 1.67% (September 2023) Best margin of outperformance was 269.38% (January 2016) Average margin of outperformance was 118.23%  Let's take a look at how attractively valued Visa is today.   Created by Author Visa appears to be slightly undervalued, supported by all three valuation methods with undervaluation ranging between 3%-8%. The fair price for the stock ranges from $288 to $302 with the average being $294. Mastercard (MA) The fourth dividend stock on today's list is Mastercard, another payment technology company and Visa's main competitor. The company went public in mid-2006, which gives it 212 full calendar months of returns. On average Visa has returned 2.59% per month, relative to 0.89% for the S&P 500, a 2.9X faster rate of growth. The 212 calendar months of returns equate to 153 unique 5-year rolling periods. The chart below displays all of the 5-year rolling returns for Mastercard and the S&P 500. Created by Author Here is a chart showing just the margin of outperformance. Created by Author The chart shows us that Mastercard's outperformance started out phenomenally well, then it normalized in the 100% to 250% range. More recently though this margin has been shrinking and sits closer to 30% today. While this is still a respectable threshold, a few bad months may bring this perfect streak to an end. Here are a few stats from the dataset:  Worst 5-year return was 74.01% (October 2023) Best 5-year return was 630.56% (August 2011) Average 5-year return was 251.44% Worst margin of outperformance was 17.96% (October 2023) Best margin of outperformance was 624.54% (August 2011) Average margin of outperformance was 173.57%  Let's take a look at how attractively valued Mastercard is today.   Created by Author Dividend yield theory and the FCF/per share multiple suggest that Mastercard is potentially undervalued today. While the P/E multiple suggests the stocks slightly overvalued. Averaging all three valuations out we arrive at a modest undervaluation of 1.5%. The fair price range for the stock is $447 to $488. Accenture PLC (ACN) The fifth and best dividend stock on today's list is Accenture PLC, a professional services company. The term \"best\" is used relative to the length of Accenture's winning streak, not the margin of outperformance it was able to generate relative to the index. The company went public in mid-2001, which gives it 270 full calendar months of returns. On average Accenture has returned 1.57% per month, relative to 0.76% for the S&P 500, a 2.05X faster rate of growth. The 270 calendar months of returns equate to 211 unique 5-year rolling periods. The chart below displays all of the 5-year rolling returns for Accenture and the S&P 500. Created by Author Here is a chart showing just the margin of outperformance. Created by Author The chart shows us that Accenture's margin of outperformance relative to the S&P 500 has oscillated through both good and bad periods. Aside from the its lowest point in 2006, the margin has never dipped lower than 20% for nearly 2 decades now. That's a pretty impressive feat and one that is not easily achieved. Here are a few stats from the dataset:  Worst 5-year return was 24.53% (April 2009) Best 5-year return was 275.60% (December 2021) Average 5-year return was 125.82% Worst margin of outperformance was 6.41% (February 2007) Best margin of outperformance was 139.15% (December 2021) Average margin of outperformance was 62.49%  Let's take a look at how attractively valued Accenture is today.   Created by Author Dividend yield theory suggests that Accenture is slightly undervalued. While the P/E multiple and FCF/per share multiple imply the stock is overvalued. Combining all three valuations we have a potential 9% overvaluation today. The fair price range is between $299 and $373, with the stock currently trading right at the top of this range. Final Thoughts Had you invested in any of these stocks at the beginning of any month between the stocks inception and five years ago, and held your position for a minimum of 5 years, you would have outperformed the S&P 500. This leads to the point that what you invest in is equally, if not more important, than the price you pay for the stock. Each of these companies is a high quality business that has generated a strong return on capital employed, they have consistently grown their revenue streams, maintained healthy gross margins and turned profits into free cash flow that was reinvested back into the business and shared with stakeholders. Time will tell whether or not each company will see its winning streak relative to the S&P 500 continue. I believe they are all still very attractive long-term investment opportunities.  These 5 dividend growth stocks do not pay attractive dividend yields. What they can offer dividend investors instead are above average dividend growth and the potential to see market beating total returns.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"hasMoreComments":false,"newsSizeData":{"likeSize":1,"commentSize":0,"repostSize":1,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false}}