Over the years, I've had my share of investing ups and downs. In that time, I've come to learn that I'm good at one kind of investing: finding future blue-chip stocks.
So what exactly am I looking for in these future blue-chip stocks to buy? I want stocks with a history of strong earnings, revenue and dividend growth.
Simply put, I have seen the incredible gains in stocks like Wal-Mart Stores Inc. (WMT) and McDonald's Corporation (MCD) when compounded over 30-plus years. Yes, I realize buying some of the stocks on our list today will not provide the outsize rewards that Walmart and McDonald's have. But I would rather sacrifice some of that upside in favor of stocks with a proven track record, consistent business and promising future.
These blue-chip stocks include some names you probably know, and some you don't. Most of them already boast strong business growth, but what we want to see from here is a management focus on growing the dividend. Eventually, you can expect these stocks to provide significant income in addition to at least modest growth in the future.
I will be the first to admit, these future blue-chip stocks are not cheap, especially after the post-election rally. But premium stocks come with a premium valuation. That's why you can't buy blindly. My suggestion? Write each of these stocks down, then wait for the broader market pullback that is more than due after such a rip-roaring run. Then, monitor each one for a 10% to 20% retreat from current prices, and when that happens ... buy!
Without further ado, here's a look at seven future blue-chip stocks to buy.
Prices and data are from the original InvestorPlace story published on March 9, 2017. Click on ticker-symbol links in each slide for current prices and more.
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Since 2010, the company's lowest dividend increase was "only" 17.6%.
While Starbucks has only paid a dividend for seven years, its growing business and iconic brand add to its attractiveness. Starbucks has showed a remarkable ability to improve earnings, revenue and same-store sales.
Investors can only put so much stock in estimates; still, analysts expect the company to grow earnings by 15.5% per year over the next five years. Further, SBUX said it expects 10% annual sales growth and earnings growth of 15% to 20% over the next five years. Even if Starbucks falls short, these are still some impressive growth figures for such a big company.
SBUX has a big runway in China and is a consistent cash-cow in the U.S. That growth combined with strong dividend growth makes this a future blue-chip stock.
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When talking about Starbucks, one of the most comparable stocks over the past five years has been Nike Inc. (NKE). The two stocks trade with a near-identical stock price and relatively close market caps. Over the past five years, SBUX stock has returned 135%, slightly more than Nike's 109%.
In any regard, both of these stocks have been big winners. But they're more than that, as both are prime candidates to be future blue-chip stocks.
Like Starbucks, Nike should have relatively strong earnings growth. Analysts expect five-year average earnings growth of 12.1%. Management estimates it will generate about $50 billion in revenue in 2020, up big from last year's $32.4 billion figure.
While sales and earnings growth have admittedly taken a dip at Nike, there's another catalyst in the dividend. The last time Nike failed to raise its dividend by double-digits came in 2009, when it increased by 9.7%. Notably, this came right in the depths of the Great Recession, a time where Nike still raised its dividend.
Nike's stock valuation is close to the bottom of its five-year range, and it's still down notably from the highs. A pullback below $55 would make this a future blue-chip stock to buy.
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Perhaps another no-brainer future blue-chip is Visa Inc. (V). After its rally, Visa now sports a market cap north of $200 billion. That may not seem like a stock with a lot of upside to some.
But consider the limits many people considered 30 years ago. Surely, they didn't suspect there would be numerous stocks sporting $500 billion market caps. Or that iPhones or self-driving cars would exist.
I would say Visa's toll-booth-like business and the move toward credit and debit from cash and check ensures it will be around for plenty of decades to come. And in that time, Visa is unlikely to get smaller.
Either is its bottom line. Earnings are expected to grow by 15.9% per year for the next five years. Sales are expected to grow at a compound annual growth rate of 10.4% from 2016's final results.
Importantly, Visa is no slouch when it comes to its dividend, either. Visa's lowest dividend increase since coming public in 2008 is "just" 16.6%. Management's focus on the dividend shows that decades of growth should lead to a strong payout down the road.
The yield may be small now, just 0.75%, but that figure is sure to grow.
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With Visa on the list, it should come as little surprise to see MasterCard Inc. (MA) right behind it.
MasterCard and Visa complete the duopoly in the payments world. While their businesses are not invincible (think recessions) the long-term outlook remains very bright. Trends toward credit and debit from cash and check help. But the trend toward online shopping is also a big win for companies like Visa and MasterCard.
Analysts expect MasterCard to grow earnings by 13% this year and 16.4% next year. For the next five years, estimates call for annual earnings growth of 14.9%.
As for its dividend growth, it has slowed each year over the past six years. But -- and this is a big but -- its payout growth has been in the double digits each year. For years, the company paid the same dividend to shareholders. But in 2012 and 2013, it doubled the payout figure and has continually increased it each year after.
While MasterCard's dividend may have started off quite low, management's focus on growth over the past six years is promising for the future.
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A. O. Smith
Most names on the future blue-chip stocks to buy list sport big market caps. But there are some smaller names too, like A. O. Smith Corp. (AOS).
For those unfamiliar with this $8.5 billion market cap company, it manufacturers water heaters, boilers and commercial water heating equipment. However, it also operates in the water-treatment business as well.
The past five years have shown one thing: Consistency. And analysts expect more of it too. Estimates call for 12.4% earnings growth this year, 9.6% next year and 11.5% over the next five years.
Revenue is expected to grow 8.8% this year and 8% next year. The dividend has been impressive as well. A. O. Smith has paid a dividend since the late-1980s. It was lowered in the early 1990s, but has been steadily growing since 1999.
Lately, it has been more impressive, though. A. O. Smith not only paid a dividend all through the Great Recession, but it also raised its payout. This year's raise made it seven consecutive years with double-digit dividend growth as well. The smallest hike in that span came in at 16.6%.
Management's rekindled focus on the dividend, coupled with A. O. Smith's consistent business, make this a future blue-chip stock to buy.
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Roper Technologies Inc. (ROP) also falls in the future blue-chip stocks to buy group. With a $21 billion-plus market cap and plenty of growth, this technology company is on the radar screen.
Roper has gotten off to a robust 2017, tacking on 15% to its stock price so far. Over the last five years, it's up a whopping 125%. But there could be more gains in sight.
Analysts expect the company's next five years of earnings to grow 14.75% annually. Revenue is forecast to grow at a compound annual growth rate of 8.1% over the next five years.
Its dividend is a thing of beauty. Despite Roper's 0.66% yield, the dividend may trump all the other future blue-chip stocks. The company has paid a dividend since going public in 1992 and has never lowered the payout. Over the past 10 years, Roper has grown its dividend by double-digits each year -- and yes, that includes through the Great Recession.
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Walt Disney Co. (DIS) is another behemoth, weighing in with a market cap of $173 billion.
Finding future blue-chip stocks with a small market cap is nice, but there also tends to be more risk. Thus the ticket to success may be to find a balance by mixing stocks such as A. O. Smith and Disney.
Many investors may bring up ESPN as a big concern for Disney. It's two-year stock performance of just 6.4% shows that concern front and center. But this overshadows many of Disney's qualities and past performance. Investors forget the stock is up a whopping 160% over the past five years alone. Management has made key acquisitions that have provided the company with important assets and cash flows.
Disney has had a big run, but with its focus on high-quality entertainment, it's sure to be a staple in millions of households for decades to come. Management's focus on the dividend is equally rewarding.
Through the Great Recession, Disney didn't raise its dividend. On the positive side, though, it also didn't reduce or cut the dividend either. Starting in 2010, the company went on a multi-year streak where the dividend grew by double-digits for six straight years. Last year's raise of just 8.8% broke that streak.
It will be important to see if Disney can get back on track with a double-digit increase in 2017.
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