New Stock Surpasses Costco in Creating Wealthy Investors

New Stock Surpasses Costco in Creating Wealthy Investors

If you held shares of Costco wholesale (NASDAQ: COST) for a significant period since the start of last year, so congratulations! You have made significant gains, whether realized or not. Better yet, if you’ve been a shareholder for several decades, this stock has likely become a massive — and extremely rewarding — part of your portfolio.

There is, however, another household name that has quietly turned even more investors into millionaires. It’s just done for a slightly different but important reason. This company ? Procter & Gamble (NYSE:PG).

The fact is that the reason P&G was so rewarding to shareholders in the past is still relevant today. The same can’t necessarily be said for Costco.

Dividends make a surprisingly big difference

It’s difficult to make a true comparison between these two consumer-focused companies. After all, they don’t work in exactly the same industry and one has been around much longer than the other. They each also have their own goals when it comes to rewarding shareholders.

However, to the extent that investors understand that each stock has its unique qualitative and quantitative characteristics, we can reasonably compare one of these names to the other.

To that end, from a price perspective, Costco is technically the better performer. Its stock is up more than 8,000% since its IPO in 1985. Wow. Conversely, Procter & Gamble has been around for nearly two centuries and has been publicly traded for decades. Since the mid-1980s, however, P&G stock has gained just under 5,000%. Both are solid performances, but clearly one is better than the other.

However, there is a dimension that is not reflected in these numbers. It is dividends. Costco pays them, but only minimally. Procter & Gamble is much more serious in their distribution. Not only does it pay larger dividends, but it has increased its annual payout every year for the past 67 years.

The final result ? Since 1985, reinvesting the dividends paid by Procter into more of the company’s stock would have given you an average annualized return of almost 13%, above the market. If the dividends were reinvested during this period, then a $10,000 investment in Procter & Gamble would be worth more than $1.1 million today.

How slow and boring old Procter & Gamble made it

Surprised? Dont be. Even though most investors today seem to prioritize finding growth prospects, dividend income remains an important part of overall market returns. Figures from the Hartford mutual fund company indicate that dividends accounted for 41% of S&P500Total returns from between 1930 and 2022. And the numbers get even more impressive when you reinvest them in the index itself. Hartford goes on to claim that 69% of the S&P 500’s total returns between 1960 and 2022 were ultimately attributed to reinvested dividends.

The secrets of this success? For Procter, consistency is a priority. The company continued to distribute dividends even as economic turmoil caused the stock to decline. That ultimately meant more shares were bought at discounts, amplifying rallies once they took shape.

There’s also the nature of Procter & Gamble’s business and how it carries it out.

Consumers will always need laundry detergent, toothpaste and diapers. Procter is a leading name in all three categories, with its Tide, Crest and Pampers brands. And that’s just a sample. It owns several category-leading brands, including Dawn dish detergent, Oral-B and Gillette razors, to name a few. It remains a market leader because it can afford to simply spend more than its competitors to market its products – something Costco can’t say.

This is important simply because this ability to outperform rivals facilitates the consistency that makes Procter a name worth reinvesting its dividends into.

Procter can also start again

None of this is to say that you absolutely have to own Procter & Gamble over Costco. There are also very good arguments for owning Costco. In fact, the stock is up more than 50% in the last year alone and more than 200% in the last five years. P&G stocks generate nowhere near this type of performance.

This big win from Costco is arguably an exception to the norm rather than its norm.

It is also unlikely to hold. The stock is now trading at a forward-looking price/earnings ratio of 46, which is incredibly expensive for any retailer’s stock. The market may soon rethink this rise, correcting the error with a significant pullback.

Procter & Gamble shares don’t carry the same degree of risk, valued at just 25 times this year’s projected earnings per share.

This sets the stage for another reason why P&G has created more millionaires than Costco: investors can comfortably and confidently hold it through good times and bad, while Costco’s often volatile nature means that it doesn’t. It’s not always an easy name to remember. with. However, when it is difficult to hold on to a stock, that is often when it is most important to do so.

At the end of the line ? You don’t necessarily need to own sexy growth stocks to become a millionaire. Boring, slow and steady names are just as capable of doing the job, if not more. Additionally, the attributes that have made Procter & Gamble such a great creator of millionaires over the past 40 years could have the same effect in the next 40 years. After all, people will always need to do laundry and brush their teeth.

Should you invest $1,000 in Procter & Gamble right now?

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James Brumley has no position in any of the stocks mentioned. The Motley Fool holds positions at and recommends Costco Wholesale. The Motley Fool has a disclosure policy.

Forget Costco: This stock has made many more millionaires was originally published by The Motley Fool

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