Analysis of Dividend Growth Stocks: McKesson (MCK) and Visa (V)

Introduction

• Dividend growth stocks have outperformed all other stocks by a wide margin for over 50 years.
• Companies that grow dividends by double-digit rates provide significant long-term passive income potential.
• Example: A $1 dividend growing at 10% annually becomes $2.59 in a decade and $6.73 in 20 years.

Market Trends and Business Impact

• Historical Returns: Dividend growers in the S&P 500 have delivered 9.2% annual returns from 1972 to 2023, outpacing non-payers (3.9%).
• Reinvestment Power: A $10,000 investment growing at 9% becomes:
  • $23,674 in 10 years
  • $56,044 in 20 years

Competitive Dynamics and Strategic Considerations

• Portfolio Potential: A $500,000 portfolio yielding 3% with 7% annual growth can generate:
  • $15,000 annually today
  • $40,000 annually in 15 years

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McKesson (MCK)

Key Facts and Data Points

• Dividend History:

  • Consistent dividend hikes for nearly two decades.
  • Most recent increase in January 2024 (18th straight year of increases).
  • Dividend growth rate: 12% CAGR over the past decade.
  • Current yield: 0.4% annually.

• Business Performance:

  • Strong cash flow from pharmaceutical distribution and oncology solutions.
  • Recent losses due to customer onboarding costs (e.g., acquisition of PRISM Vision Holdings).
  • Expected to turn positive by Q4.

Market Implications

• McKesson’s long-term stability and dividend growth make it a reliable choice for passive income.
• Broad reach in healthcare partnerships provides resilience despite challenges like tariff talks and cost scrutiny.

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Visa (V)

Key Facts and Data Points

• Dividend History:

  • Dividend increases every year for over 15 years.
  • Most recent increase announced in late 2024.
  • Dividend growth rate: 15% CAGR over the past five years, nearly 20% over the past decade.
  • Current yield: Just under 1% annually.

• Business Performance:

  • Processes 6.8 trillion transactions annually across its 4.6 billion cards in circulation.
  • Resilient during economic downturns (e.g., 20% transaction growth in 2020).
  • $20 billion cash pile provides financial cushion.

Market Implications

• Visa’s ability to grow dividends and transactions positions it as a stable, long-term investment.
• Immunity from credit risk (not a lender) enhances its appeal during economic uncertainty.

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Long-Term Effects and Regulatory Impact

• Dividend Growth: Both companies’ histories of consistent dividend hikes suggest long-term stability and shareholder value creation.
• Market Resilience: Both businesses operate in essential sectors (healthcare and payments), providing defensive characteristics during downturns.

Conclusion

Both McKesson (MCK) and Visa (V) are well-positioned to deliver passive income through consistent dividend growth. Their strong financial positions, cash flow generation, and histories of reliable payouts make them attractive long-term investments.