While sometimes overshadowed by stocks in the mega-cap ($200 billion market cap and higher) stocks category, large-cap stocks (or stocks with a market cap between $10 billion and $200 billion) can often offer investors the best of both worlds.
Large-caps are typically shares in established, profitable enterprises. Compared to stocks in the mid-cap, small-cap, and micro-cap categories, this may make them better buys for investors targeting steady returns.
With more room to run growth-wise compared to the mega-caps (which outside of tech, are typically very large, mature enterprises with limited growth potential), large-cap can have the potential to produce greater returns (from both price appreciation and dividends) compared to the mega-caps.
According to Finviz, there are 713 large-caps trading on major U.S. exchanges. However, among this large pool of opportunities, take a look at these seven. Each of these large-cap stocks has a solid track record of earnings and dividend growth.
Automated Data Processing (ADP)
Automated Data Processing (NASDAQ:ADP) has long been one of the best large-cap stocks to buy and hold. Shares in the payroll and outsourced HR services provider have experienced strong price appreciation, rising 220% over the past decade.
ADP stock has also been a rewarding investment for dividend-focused investors. As I noted back in August, ADP is a “dividend aristocrat,” with over 25 consecutive years of dividend growth under its belt. The stock currently has a forward dividend yield of 2.43%.
Assuming growth trends continue, Automatic Data Processing remains well-positioned to continue producing strong returns. Forecasts call for earnings to rise by between 9%-10% over the next few years. Dividend growth has averaged 13.6% annually over the past five years. Put it all together, and it’s clear to see why ADP remains one of the top large-caps for investors focused on steady gains for their portfolios.
Illinois Tool Works (ITW)
Illinois Tool Works (NYSE:ITW) is another of the dividend aristocrats that’s one of the best large-cap stocks to buy. This industrial conglomerate has increased its dividend payouts 27 years in a row. With a forward yield of 2.37%, dividend growth has averaged 9.8% annually over the past five years.
Similar to ADP, ITW stock has also experienced an outsized level of price appreciation over the past decade. Consistent earnings growth has sent the stock surging threefold since 2013. ITW’s forward multiple (24.3) may seem steep at first place, when compared to stocks overall.
However, given the company’s resilient results (improved earnings despite zero revenue growth) last quarter, and the prospect of growth re-acceleration (based on sell-side earnings forecasts), ITW still appears on track to deliver the level of earnings growth necessarily to sustain its valuation, and keep shares trending upwards over a long time frame.
L3 Harris Technologies (LHX)
L3 Harris Technologies (NYSE:LHX) isn’t in the dividend aristocrats category just yet, but it’s getting there. This defense firm has raised its payouts for 21 years in a row.
LHX’s 2.43% dividend yields provide a solid baseline of returns, and the payout has increased by 13.6% on average over the past five years.
Thanks to the company’s strengths in acquiring/realizing cost/growth synergies out of bolt-on acquisitions, LHX stock (up 182.8% over the past 10 years) appears poised to keep rising, in line with expected high single-digit increases in earnings per share.
That’s not all. As Raymond James analyst Brian Gesuale recently argued, LHX is undervalued compared to peers in the aerospace and defense technology space. While not for certain, it’s possible that, over time, this valuation gap is bridged. Such multiple expansion could help to further boost future total returns.
With shares declining in price over the past five years, at first you may question Medtronic’s (NYSE:MDT) appeal as a long-term buy-and-hold. Yet while the medical device maker hasn’t exactly been a winner for investors in recent years, it could be a different story in the years ahead.
As InvestorPlace’s Will Ashworth recently pointed out, Medtronic is in the midst of a restructuring. Once the company completes divesting non-core/underperforming business segments, and becomes focused fully on higher growth/higher margin products, MDT stock (trading for only 14.2 times earnings today) could experience a big re-rating to the upside.
Alongside this, the stock’s moderately-high dividend (3.8% forward yield) stands to provide a further boost for total returns. While it may take time for the turnaround to play out, in hindsight buying now (as uncertainty still looms over shares) could prove to be a very profitable move.
NextEra Energy (NEE)
NextEra Energy (NYSE:NEE) shares are currently in a slump. There’s no way to sugarcoat it. As I discussed last month, shares took a dive in September, as the prospect of persistently high interest rates and slowing growth for the utility company’s renewables segments weighed on the minds of investors.
However, if you’re looking to make NEE stock one of the large-cap stocks to buy and hold in your portfolio, this sharp sell-off works to your advantage. Although shares have started to recover, NextEra remains reasonably-priced, at 18.4 times forward earnings.
Despite the walking-back of outlook, analysts still expect NEE to report high single-digit earnings growth in the years to come, which may help to drive shares higher. Combine that with NextEra’s 3.25% (and growing) dividend, and it’s easy to see why NEE, while no longer a high-flier, could still be a long-term winner for slow-and-steady investors.
Philip Morris International (PM)
With its greater exposure to non-combustible tobacco products, up until recently, Philip Morris International (NYSE:PM) was considered the tobacco company with the brightest future. More recently, though, pessimism about the stock has made a resurgence.
Namely, there are concerns that, even for Philip Morris International, non-combustible growth will fail to make up for global declines in cigarette consumption. However, based on the company’s Q3 2023 results, I wouldn’t necessarily jump to this bearish conclusion about PM stock.
Even when excluding increased revenue resulting from PM’s acquisition of Swedish Match last year, top-line growth came in at 9.3%. With adjusted earnings per share rising 20.3%, so far it appears that the smokefree transition is working out. As PM trades for only 14.8 times earnings, and with a 5.75% dividend to boot, now may be the perfect time to make this a long-term buy-and-hold.
Food distributor Sysco (NYSE:SYY) was initially able to pass on rising food costs to its consumers. This resulted in a big jump of profitability during the company’s fiscal year ending July 2022.
Since then, however, inflation has started to affect Sysco’s financial performance. Namely, inflation, along with higher interest rates, have led to softening demand from the company’s main customer base (restaurants). However, while in a rough patch right now, Sysco is likely to get back on track, once economic conditions normalize. This could spark a rebound for SYY stock, which is down 9.24% this year.
In terms of SYY’s appeal as one of the large-caps to buy-and-hold, after recovering from present headwinds, the company could get back to reporting prior levels of earnings growth. In turn, leading to continued mid single-digit growth of its dividend (currently at 2.9%), along with mid-single digit price appreciation.
On the date of publication, Thomas Niel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.