Over the last three, five, and ten years, these dividend stocks have beaten the S&P 500 and the Nasdaq Composite.

Fears of a recession led the Nasdaq Composite into a bear market this year.

However, while the index as a whole has plummeted 35%, many dividend-paying constituents have declined less dramatically.

For example, Microsoft and Costco Wholesale have seen their share values fall by 30% and 24%, respectively.

This demonstrates something that many passive income investors are already aware of.

Dividend-paying companies outperform the overall market, particularly those that continually grow their payouts.

The explanation for this is straightforward.

Any company that generates enough cash to boost its payout on a regular basis is usually supported by solid fundamentals.

Microsoft and Costco are two excellent examples.

The S&P 500 and Nasdaq Composite have risen 19% and 17%, respectively, over the last three years, while Microsoft and Costco have risen 52% and 57%, respectively.

This pattern of outperformance has continued over the last five and ten years, and investors have reason to expect it will continue.

This is why.

Microsoft is a software and cloud computing behemoth.

According to software research firm G2, Microsoft will be the best global software seller in 2022.

This honor is based on good user satisfaction and a significant presence in multiple verticals. Indeed, Microsoft 365 is the most widely used enterprise application suite of any kind, with industry-leading solutions for office productivity, communications, and business intelligence.

Microsoft has also been named a leader in various cybersecurity industries.

Meanwhile, Microsoft Azure is the second-largest provider of cloud infrastructure services, with a 22% market share, trailing only Amazon Web Services.

This success may be attributed to its support for hybrid computing and its powerful portfolio of developer tools, cutting-edge database solutions, and industry-leading machine learning applications.

This positions Microsoft well, as cloud computing investment is predicted to expand at a 16% annual rate to $1.6 trillion by 2030.

Despite the challenging economic environment, Microsoft achieved rather decent financial results during the past year.

Revenue surged 15% to $203 billion, while free cash flow jumped 5% to $63 billion.

Better yet, as economic conditions improve, growth might easily accelerate, and shareholders have good reason to expect market-beating gains in the long run.

Microsoft, as previously said, is a market leader in office productivity, communications, and cybersecurity software, as well as the second-largest cloud services, provider.

These markets will only grow as businesses continue to embrace digital transformation.

However, Microsoft has risen to become the world’s sixth-largest digital advertiser, and its exclusive partnership with Netflix – Microsoft provides the ad tech that powers Netflix’s new ad-supported tier – positions the company to gain market share in online video advertising, a market that is expected to grow at a 14% annual rate to $362 billion by 2027.

This should pave the path for solid share price appreciation.

However, Microsoft also pays a quarterly dividend of $0.68 per share, which has increased by 11% each year over the last decade.

Given Microsoft’s diverse portfolio of mission-critical software and cloud services, passive income investors may expect the company’s consistent dividend increases to continue.

That is why this growing stock is worthwhile to purchase.

Costco is a retail behemoth with a robust business plan.

Costco is the world’s third-largest retailer.

That success is predicated on a membership-based business model and a simple idea: offer low pricing on a restricted number of brands across a wide range of goods, and strong sales and rapid inventory turnover should result.

To that aim, Costco meticulously evaluates products based on price and quality, and it chooses only 4,000 stock-keeping units (SKUs) for its shelves, significantly fewer than typical supermarkets’ 30,000 SKUs.

This increases its purchasing power by pushing firms to fight for limited shelf space.

Furthermore, in circumstances when name-brand products have grown prohibitively expensive, Costco will produce comparable products under its Kirkland Signature private label.

This enables the corporation to undercut competition pricing, resulting in cost savings for members (typically around 20%) while maintaining a bigger profit margin.

Many businesses have struggled in recent years as consumers have reduced discretionary spending in reaction to high inflation, yet Costco has generated relatively strong financial results.

Revenue climbed 14% to $231 billion, while earnings per diluted share increased 14% to $13.23. Even better, Costco is ideally positioned to build shareholder wealth in the coming years.

The company posted a membership renewal rate of 92.5% in the most recent quarter, demonstrating the value it provides to customers.

Furthermore, management has laid out a good growth strategy that focuses on recruiting new members, expanding its e-commerce business, and constructing new warehouses.

Furthermore, Costco currently pays a quarterly dividend of $0.90 per share, which has climbed at a rate of 13% per year over the last 18 years.

Given its massive size and solid business model, shareholders should expect the dividend to rise more in the coming years.

That is why this dividend stock is worthwhile to purchase.

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