Beat the S&P 500 With This Cash-Gushing Dividend Stock

Justin Pope, The Motley Fool

Sun, Jun 1, 2025, 2:14 AM 4 min read

Key Points

Zoetis is the leader in a growing animal healthcare industry.
The stock's secret formula for huge returns? Growing sales, a rising dividend, and shrinking share count.
Zoetis doesn't feel cheap at 30 times earnings, but historically, it rarely drops this far.
10 stocks we like better than Zoetis ›

You don't need to uncover the next big artificial intelligence stock to outperform the broader stock market. Sometimes, consistent and profitable growth is all you need to achieve outsize investment returns.

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Zoetis (NYSE: ZTS) is an animal healthcare company that split off from Pfizer in 2013. The stock has beaten the S&P 500 ever since, and now may be as good an opportunity as any to buy the stock.

Here is why Zoetis is a compelling buy today, and why investors can continue to expect outstanding investment returns over the coming years.

A person giving medicine to their dog. — Image source: Getty Images.

A powerhouse product portfolio with many winners

Innovation is at the core of the pharmaceutical business, where companies invest substantial resources to develop and obtain regulatory approval for drugs and therapies. Once approved, their patents essentially block out competition for years. The catch is that drug development often fails, so the winners need to compensate for the failures, too.

Size and deep pockets are advantages here, and Zoetis sits at the top of the mountain in animal health. The company develops and sells devices and drugs for treating pets and livestock, including cats and dogs, cattle, fish, swine, and poultry.

The company expects 2025 sales to exceed $9.2 billion, driven by a portfolio of approximately 300 product lines, including 17 blockbusters that generated at least $100 million in sales last year. Its diversity translates to stable revenue streams. Zoetis' annual sales have continually set new records every year since the company began trading over a decade ago.

Zoetis grows and gushes cash, a lucrative combination

Zoetis is a highly profitable enterprise, converting roughly $0.25 of every revenue dollar into free cash flow. Having billions of dollars in annual cash profits enables Zoetis to hit the investing trifecta for great stocks:

Organic revenue growth
Paying and raising dividends
Buying back stock to boost earnings per share

Doing all these things simultaneously is why the stock has performed as well as it has.

ZTS Revenue (TTM) Chart — Data by YCharts.

Importantly, this should continue for the foreseeable future.

Studies have shown that millennial and Gen Z Americans are driving growth in pet expenditures and ownership rates. Pet owners form emotional bonds with companion animals, which will likely translate to a growing market opportunity for Zoetis, as well as pricing power and spending resiliency through economic cycles.

Additionally, livestock remains a long-term growth opportunity. A growing global population will consume more protein, and Zoetis' worldwide footprint should position it for growth in emerging markets, where much of that growth is likely to occur.

The stock's valuation isn't usually this attractive

You would look at Zoetis and its price-to-earnings (P/E) ratio of 30 and assume the stock is expensive. Ironically, it rarely becomes this cheap. Analysts estimate the company will grow earnings by an average of around 10% annually over the long term.

Most stocks with healthy but unspectacular growth don't trade at such valuations. However, Zoetis' business has been such a consistent performer that investors value the stock for its safety. No stock is a sure bet, but you can feel pretty confident about buying and holding this one.

Ideally, the stock's valuation will become even cheaper, but as you can see, that's a risk because it hasn't fallen much from these levels in over a decade's worth of history. If Zoetis continues to perform as it has, the stock has a good chance of at least maintaining its current P/E ratio, meaning growth and dividends will drive the stock's returns.

Investors can realistically expect somewhere around 11% annualized returns, driven by earnings growth and a rising dividend that yields 1.2% today. It's not explosive, but solid, steady returns can outrun the broader market over the long term.

Should you invest $1,000 in Zoetis right now?

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Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Pfizer and Zoetis. The Motley Fool has a disclosure policy.

Beat the S&P 500 With This Cash-Gushing Dividend Stock was originally published by The Motley Fool

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