KEY POINTS
- Home Depot pivoted to focus more on digital and professional sales even before the pandemic.
- Costco and Target have both achieved strong e-commerce growth for several consecutive years.
- These companies all return excess cash to shareholders through dividends.
Past performance doesn't predict future results, but there's reason to think these stocks can continue to outperform.
Investors don't have to always swing for the fences to beat the market. While every investor wants to believe they can triple their money, that rarely happens overnight. But getting that 200% return over a 10-year period is not an unreasonable goal. Those are market-beating results that come out to an 11.6% annualized return.
Beating the historical return of the general stock market is a way to get to retirement and beyond with plenty of financial cushion. And investors can limit the risk by betting on names they know that have shown those returns are feasible. These three stocks have done that, and the businesses behind them look to be set up to continue those market-beating results.
Image source: Getty Images.
Blowout returns
Home Depot ( HD -0.11% ), Costco Wholesale ( COST 0.36% ), and Target ( TGT -0.09% ) all benefited from increases in business during the pandemic. But they all were extremely successful businesses -- and investments -- prior to that tailwind. Because they are well-known (some would say boring) retailers, these companies probably don't stand out to investors looking to amp up returns. But investment results over the last decade have been nothing short of outstanding. That includes in comparison to the general stock market represented by the S&P 500 Index.
Total Return Level data by YCharts.
Evolving businesses
All of these companies have grown their businesses over the years by evolving to maximize potential. Home Depot initiated a new strategy in 2017 that it named One Home Depot. The $11 billion multi-year program aimed to build out its digital channels as shoppers embraced online shopping more and more. Separately, it acquired HD Supply to enhance its offerings and attractiveness to the professional contractor base. That $8 billion acquisition in late 2020 reunited the two businesses after Home Depot previously sold it for $8.5 billion in 2007.
NYSE: HD
Costco and Target had also been ramping up their online businesses, even prior to the pandemic. Costco's e-commerce sales rose more than 23% in 2019. Consumer habits changed during the pandemic, and that growth soared in 2020 when its online sales jumped another 50%. Even against those strong comparisons, that e-commerce business continues to grow at double-digit rates.
Target also saw those trends coming and was heading down a similar path. It acquired Shipt, a platform for same-day delivery service, in 2017. Online sales using those services almost doubled for the retailer in 2019. It also experienced strong tailwinds from consumers using digital channels during the pandemic. Comparable digital sales in 2020 rocketed 145% above 2019 results. Like Costco, Target's growth has continued, with its third-quarter 2021 digital comparable sales rising another 29% over the prior years' elevated levels.
NYSE: TGT
Sharing the wealth
All three companies also pay dividends to shareholders. Target has raised its payout annually for 50 consecutive years, putting it in the elite group of Dividend Kings. Costco chooses to offer a fairly low base dividend while paying special dividends to stockholders in the years the company's business thrives. That most recently included a $10 per share special dividend in November 2020, making it the fourth special dividend paid in the last nine years. Its base dividend was also raised in 2021 and yields just over 0.5% on an annual basis at the recent share price.
NASDAQ: COST
Home Depot has also steadily raised its payout, which currently yields about 2%. Those dividends have helped contribute to the overall returns from these stocks and will continue to do so. For those who might want to split $3,000 into three investments that could reasonably triple over the next decade, these three well-known names fit the bill.
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