One “Holy Grail” Stock for the 2024 Money Shift

By TradeSmith Research Team

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2024 is setting up to be a year to remember.

That’s because there’s a tidal wave of capital set to flood into one elite asset class… Dividend growth stocks.

Some of the greatest equity investments of all time fall into this group. I’m talking about the Exxon Mobils, Coca-Colas, and McDonald’s of the world. The stock market equivalent of Fifth Avenue real estate.

And there’s a good reason why these stocks are set to surge.

As I explained a month ago, the Fed is done raising rates. More importantly, they’re expected to cut interest rates multiple times in 2024.

That means all the income-hunters sitting in high-yielding money market funds will soon seek yield elsewhere.

It doesn’t take a Mensa member to guess where a chunk of those nearly $6 trillion in assets will flow once the cuts come. Strong stocks with growing dividends will surely benefit.

So, today we’re going to study some dividend history.

We’ll learn why reinvesting dividends is a portfolio supercharger.

I’ll give you the key attribute to focus on for finding all-star dividend stocks.

Finally, I’ll single out a “holy grail” stock set to benefit in this huge money shift…

…which just raised its payout by 15.8%.

Thank Dividends for 1/3 of Your Retirement

It should come as no surprise that the stock market goes up over time. Just look at any long-term chart of the S&P 500 and you’ll see a graph climbing up and to the right over decades.

But what you may not realize is a monster portion of those gains are due to dividends.

In fact, since 1926, the total dividend contribution to the S&P 500 stands at a staggering 31.6%. Dividends are responsible for nearly 1/3 of your retirement portfolio’s gains.

Simply stated, if you’re not focused on dividends, you’re missing out on a massive chunk of returns.

Below reveals the portion of returns that dividends played in S&P 500 total returns by decade:

Dividends are the lifeblood of market performance going back nearly 100 years. But the reason is their compounding effect — the cumulative impact of dividend resinvestment over time.

Time is the most important factor when it comes to compounding. Because over the last 50 years, the longer you reinvest dividends, the more pronounced the effects of compounding become.

The chart below plots the average 1- to 10-year performance of the S&P 500 on a continuous horizon. In each pairing, the black bar shows the price return, while the orange bar includes reinvested dividends.

On a one-year basis, the difference is modest, with a 3% return in favor of reinvesting dividends. That’s like turning $100,000 into $103,000 in one year.

But take it out to 10 years, and the differential is substantial: 77%… handing you $77,000.

Now, it should be abundantly clear that YOU NEED to reinvest dividends.

And with interest rates set to fall hard in 2024, I believe dividend growth stocks will become the darling of Wall Street…

Specifically, companies with one easy-to-understand quality.

All “Holy Grail” Dividend Stocks Share This

Dividends are a surefire way to grow your portfolio over time.

But there’s one variable that’s key.

Focus on companies raising their payouts year after year.

So often, new investors are seduced by high yields… only to find out how unsustainable they are. A double-digit annual yield doesn’t mean much if it gets slashed every other quarter.

The best dividend growth companies often don’t offer double-digit yields. But they don’t need to.

Companies like these are very profitable and their business grows every single year. Growing businesses ultimately lead to higher profits, which inevitably trickle down to shareholders in the form of rising payouts.

This creates the holy grail setup I mentioned earlier: Stocks with capital appreciation PLUS continual dividend growth.

One outstanding company that provides this is Mastercard Inc. (MA).

There may be no better business on earth than credit cards.

I’m serious. The payment solution network created by Mastercard is second to none.

I’ll bet you’ve used a credit card in the past week. And chances are good it’s a Mastercard. According to the 2022 Nilson Report, Mastercard’s U.S. market share is 25.7%.

Consider these fundamental facts.

  • Sales are set to double in 2023 compared to 2017 — growing from $12.5 billion to an estimated $25 billion in 2023.
  • Net income has surged since 2017 — growing from $3.9 billion in 2017 to an estimated $11.5 billion in 2023.
As I said earlier, growing businesses mean more room to raise dividends year after year.

Yesterday, Mastercard raised its quarterly dividend 15.8% to 66 cents per share from 57 cents — its 12th year of consecutive raises.

A growing dividend like this is way more important than a high-but-unreliable dividend yield.

The chart below illustrates this beautifully. Since 2006, Mastercard has consistently raised its dividend (middle green line) while its dividend yield has stayed constant around 0.6%.

With reinvested dividends since its IPO, shares are up 9,563% compared to 9,072% of price gains alone:

Source: FactSet

The money shift of 2024 is coming, and soon.

My bet is income seekers will thirst for reliable dividend growth… and Mastercard is perfectly suited to meet that demand.

Not to mention, it’s a financial stock. And we know, based on history, the financial sector pops most after the Fed is done hiking rates.

Nearly 100 years of dividend reinvesting has helped the S&P 500 climb to great heights. Chances are, the next 100 years will look similar.

Position yourself in great dividend-growing companies like Mastercard, and you’re sure to capture a lot of wealth.


Lucas Downey,
Contributing Editor, TradeSmith Daily