Investors always praise compounder-type stocks, which are known for their proven ability to exponentially grow wealth over time. These companies usually achieve a high return on capital invested (ROCE) and return on equity (ROE). By reinvesting the majority of their earnings to generate further high returns on investment, these enterprises can compound their financials at an extraordinary pace over extended periods.
When you add dividends to the equation, compounder stocks can truly allow your returns to skyrocket. The following companies have increased their revenues at a compound annual growth rate (CAGR) of at least 10% over the past decade. Also earnings-per-share (EPS) CAGR have grown by at least 15% over the same period. Finally, dividend growth track records extend beyond 15 years to ensure a strong dividend growth culture in each company.
Of course, when it comes to generating above-average returns, it’s essential to consider the associated risks, including economic cycles and sector-specific challenges. However, current valuation levels appear attractive relative to growth prospects and the unique qualities of their business models. So, the following three names seem to offer a wide margin of safety as well.
Lithia Motors (LAD)
Lithia Motors (NYSE:LAD) may have an upside potential of at least 30% over the next two years. The company is a leading player in the automotive retail industry, known for its vast network of dealerships spanning the U.S. It operates over 200 locations, marketing both new and used vehicles and related services such as financing, maintenance and repairs. It’s a simple business model that the company has mastered to drive superb growth and returns.
To illustrate, Lithia Motors has increased its revenues and EPS at CAGRs of 24.6% and 22.7% over the past decade. Moreover, the company has increased its dividend per share (DPS) for 15 consecutive years. Also, this metric boosts it at an impressive CAGR of 14.4% over the last ten years.
One of Lithia Motors’ core strengths that has driven such impressive growth over the years is its acquisition strategy. This has enabled the company to expand its market reach and enhance operational efficiencies. By integrating new dealerships effectively, Lithia Motors has consistently increased its geographical footprint and leveraged economies of scale to drive exceptional profitability.
Cencora (COR)
Cencora (NYSE:COR) focuses on sourcing and distributing pharmaceutical products. COR has carved out a niche in the industry by ensuring reliable supply chains and strategic partnerships with global pharmaceutical manufacturers. This strategy allows it to grow rapidly over the years. For context, Cencora’s revenue and net income have grown at CAGRs of 11.5% and 15.0% over the past decade. This is a truly exceptional track record.
The company’s success can largely be attributed to its highly efficient supply chain network. The system ensures timely delivery and consistent availability of pharmaceutical products. This capability is crucial in meeting customer demands and maintaining operational reliability, making Cencora the go-to supplier. Its close relationship with pharma giants over the years has also played a crucial role in its results.
With its financials trending upward over the years, Cencora has consistently raised its dividend rather comfortably. The most recent dividend increase was by 6.3%, marking 20 years of consecutive annual dividend increases. The dividend yield is a modest 0.9%, which may not appeal to income-focused investors given current interest rates exceeding 5%. However, Cencora’s primary investment appeal lies in its potential for price appreciation.
Brown & Brown (BRO)
Brown & Brown (NYSE:BRO) has achieved extraordinary shareholder returns among its insurance industry peers over the years. To illustrate, Brown & Brown stock has delivered a total return CAGR of 18.2% over the past 31 years. This is just a truly impressive track record that speaks volumes about the strengths of its business model.
On the surface, Brown & Brown might seem like just another average insurance company. It offers a wide spectrum of products and services such as property and casualty insurance, employee benefits and risk management solutions.
But Brown & Brown truly shines in its exceptional capital allocation strategy. Management has mastered acquiring smaller competitors and seamlessly integrating them into the core business. This approach has improved profit margins and driven impressive ROCE, substantially increasing Brown & Brown’s book value over time.
In the meantime, Brown & Brown features a wonderful dividend growth track record that exceeds three decades. The company has raised its dividend every year since 1994, with the average hike over the past 10 years averaging nearly 10%. Now, considering Brown & Brown is trading at near all-time highs, it may surprise you that I have included it in this list. Yet, given its underlying financials and overall momentum, I believe that this high-growth dividend stock can achieve total returns exceeding 30% over the next two years.
On the date of publication, Nikolaos Sismanis did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.