The Standards and Practices (S&P) 500 has surged since the pandemic lows in March 2020, driven by monetary and fiscal stimulus, but growth might slow when the Federal Reserve tightens policies. This has led me to come up with my total return picks for September 2023.
The era of high returns may become more challenging. Consider focusing on companies that have historically delivered strong returns and still have growth potential. Here are my top three total return picks spanning various sectors with a history of outsized total returns (capital appreciation plus dividends), with promising prospects for the future.
McDonald’s (MCD)
Regardless of economic fluctuations, McDonald’s (NYSE:MCD) remains a dependable blue-chip stock. Its universal appeal, especially during the pandemic, proves its resilience. Inflationary concerns have impacted McDonald’s stock performance, despite strong recent results. However, cooling inflation has prompted a Wells Fargo upgrade, citing potential margin expansion as a catalyst.
Investors can rely on McDonald’s solid financials, including a 3.8% three-year revenue growth rate and consistent profitability. Analysts rate MCD stock as a strong buy, with a $332.32 price target, indicating 19% potential upside.
In the first quarter, DoubleLine ETF Adviser LP acquired 12,686 shares of McDonald’s, valued at around $3,547,000. This purchase accounts for approximately 1.5% of their holdings, ranking McDonald’s as their 13th largest holding. Other significant investors, such as Moneta Group Investment Advisors LLC and Norges Bank, also made substantial moves in McDonald’s stock during the fourth quarter. Moneta Group significantly increased its holdings, while Norges Bank initiated a new position in the company. This easily earned its spot in my total return picks.
Apple (AAPL)
In the past year, Apple (NASDAQ:AAPL) raked in a staggering $384 billion in revenue, a mind-boggling figure. Yet, as a colossal enterprise, its growth is inevitably slowing, with sales declining year-over-year in the last three quarters.
However, from fiscal 2017 to fiscal 2022, it achieved an 11.5% annualized revenue growth, suggesting recent challenges could be linked to broader economic factors. While there’s optimism, it’s prudent for investors to manage their expectations.
Despite Apple’s maturing phase, it’s a cash machine. In fiscal 2022, it generated $111 billion in free cash flow, $80 billion in the first three quarters of fiscal 2023. While revenue growth may not thrill investors, it’s excellent at returning cash to shareholders. In the initial three fiscal 2023 quarters, it paid $11.3 billion in dividends and repurchased $56.5 billion in stock. Plus, Warren Buffett’s Berkshire Hathaway (NYSE:BRK-B) holds a roughly 6% stake in Apple, which provides a significant source of passive income for his conglomerate.
Devon Energy (DVN)
Devon Energy (NYSE:DVN) could benefit from the return to office work, boosting traffic volumes. It’s a compelling speculative dividend choice with a 6.1% forward yield, beating the 4.24% sector average. A payout ratio of 43.79% shows confidence in its yield. Currently, DVN stock offers a rare nearly 10% yield with a quarterly dividend of $1.13 per share.
Devon Energy, based in Oklahoma City, fell 22.6% in the last year. This is partly due to its emphasis on natural gas production over crude oil. However, Devon has shifted focus towards crude oil in recent years. This shift toward crude oil sets the stage for future growth, potentially increasing both share prices and base dividends.
This is a company which is well-known for its variable dividend, which increases and decreases alongside the price of oil (and therefore the company’s profitability). Thus, for investors looking for a solid way to play upside in oil prices, given the trajectory they’ve been on of late, this is how I’d do it. The company’s total return over the past few years speaks for itself.
On the date of publication, Chris MacDonald has a LONG position in AAPL, BRK-B. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
