Whether you're a new investor or a tenured veteran who's been putting your money to work on Wall Street for decades, you're likely aware that the stock market doesn't move up in a straight line. Although its major indexes have a knack for increasing in value over time, even the best stocks have down years.
However, a select group of highly profitable, time-tested stocks have shown that down years can be few and far between. The following four companies have exceptional track records of generating positive total returns, including dividends, for investors, and have made them a whole lot richer.
Image source: Getty Images.
Costco Wholesale
Most people are probably familiar with warehouse club Costco Wholesale (NASDAQ:COST). Whether you have a membership to its stores or have been stuck in the line of traffic leading up to its mammoth shopping locations, Costco and its more than 560 U.S. stores are tough to miss.
What you might not realize is that, including dividends paid, Costco has delivered a positive total return in 18 of the past 20 years. Between Dec. 31, 2001 and Dec. 31, 2021, Costco generated a total return for investors of more than 1,700%!
One of the most obvious reasons Costco is such a success story is its size. Similar to how Walmart throws its weight around to undercut local mom-and-pop stores on price, Costco uses its size and deep pockets to buy goods in bulk. Buying large quantities of goods often means getting each unit for a lower price. Costco is then able to pass along these savings to its members and regularly undercut grocery chains and retailers on price.
This leads to the next key factor of the Costco operating model: Its memberships. Since the margins on grocery items are razor-thin, Costco relies on membership fees to buoy its margins and keep customers loyal to the brand. Getting members into its stores also encourages them to shop around and purchase higher-margin discretionary items, such as clothes, electronics, and jewelry.
Lastly, since a sizable percentage of the items Costco sells are basic need goods, the company often generates highly predictable cash flow -- and Wall Street values predictability.
Image source: Getty Images.
UnitedHealth Group
Another well-known company with an exceptional track record of making its investors a lot richer is UnitedHealth Group (NYSE:UNH). The largest healthcare stock by market cap has also generated a positive total return for shareholders in 18 of the past 20 years, with an aggregate gain in excess of 3,300% over two decades.
UnitedHealth is arguably best known for providing individual and commercial health insurance. Just like any insurance company, periods where claims and/or expenses spike higher do occur from time to time. However, the great thing about insurers, speaking from a business standpoint, is that they have little issue passing along premium price hikes to cover their expenses. Whether it's higher costs experienced from treating COVID-19 patients or the expectation of higher future medical care expenses, UnitedHealth Group's insurance division is consistently profitable.
What investors might not realize is that subsidiary Optum is the far more intriguing segment. Optum is itself split into three divisions (OptumRx, OptumInsight, and OptumHealth), with a focus on everything from providing pharmacies with prescription refills to supplying hospitals and medical organizations with software designed to streamline their operations. Optum is growing considerably faster than UnitedHealth's insurance segment, and it should bring in juicier long-term margins.
Thanks to Optum's rapid growth and the transparency of the company's traditional insurance operations, there's a good likelihood that UnitedHealth's incredible run will continue.
Image source: Getty Images.
NextEra Energy
When it comes to consistency, virtually none of the thousands of listed securities have delivered the green quite like electric utility stock NextEra Energy (NYSE:NEE). Since the end of 2001, NextEra has had only one year where it's produced a negative total return (2008). With 19 positive total returns over 20 years, NextEra has rewarded its patient shareholders with aggregate gains of around 2,400%.
If you're noticing a recurring theme among these stocks, it's that businesses providing necessary goods and services tend to perform well. If you own a home or rent, there's a very good chance you'll need electricity and/or natural gas to live comfortably. Demand for NextEra's services won't change much from year to year. Furthermore, utility operations tend to be monopolies or duopolies, which provides a steadiness to the cash flow of electric utilities.
What sets NextEra Energy apart from its peers is the company's renewable energy focus. NextEra plans to spend an aggregate of $50 billion to $55 billion on new infrastructure projects between 2020 and 2022. The company is already generating more capacity from wind and solar power than any other utility, and this is unlikely to change anytime soon. These clean-energy projects are helping to reduce electricity generation costs, which ultimately is what's lifted NextEra's compound annual growth rate to the high single digits in a notoriously slow-growing sector.
Additionally, NextEra's traditional utility operations provide cash flow stability. By "traditional," I mean those not powered by renewable energy. Having some of its operations regulated by public utility commissions ensures the company doesn't have to contend with potentially volatile wholesale electricity pricing.
Berkshire Hathaway CEO Warren Buffett. Image source: The Motley Fool.
Berkshire Hathaway
A fourth and final stock with a nearly unbeatable track record of making its long-term shareholders richer is Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B).
Aside from generating a positive return in 16 of the past 20 years, the company's Class A shares (BRK.A) have averaged an annual return of better than 20% since the beginning of 1965. Between Dec. 31, 1964 and Dec. 31, 2021, Berkshire Hathaway produced a gain of more than 3,600,000% for its investors.
If you're wondering why Berkshire Hathaway is such a successful investment, look no further than its CEO, billionaire Warren Buffett. The Oracle of Omaha, as he's known, has a knack for investing in and/or acquiring cyclical businesses in the financial, utility, consumer staples, and information technology sectors. Even though recessions are an inevitable part of the economic cycle, Buffett understands that periods of economic expansion last many times longer than recessions. He's playing a numbers game with time as his greatest ally.
Berkshire Hathaway's success is also a reflection of Buffett and his investing team loading the company's investment portfolio with dividend stocks. In 2022, Berkshire is on track to collect more than $5 billion in dividend income, which equates to a yield relative to cost basis of around 5%. Dividend stocks are almost always profitable and time-tested, making them the perfect place to park money for the long run.
Riding Warren Buffett's coattails has been a profitable venture for a long time.
