History has shown that over time nothing beats dividend growth investing when it comes to compounding your wealth and passive income. And despite the market now being in its 10th year of a bull market, some quality blue chip dividend growth stocks are always on sale.

This is why I want to point out FedEx (FDX), a fast growing industry leader that has proven itself to be a great investment over the past 30 years.

• FedEx total return: 2,070% (10.8% annualized)
• S&P 500 total return: 1,360% (9.4% annualized)

More importantly, I think that FedEx has plenty of positive catalysts working in its favor that should allow it to not just match its impressive past results, but far exceed them. That’s thanks to this fast growing dividend stock being one of the most undervalued blue chips you can find today. In fact, over the coming decade I think FedEx is possibly capable of about 18% annualized total returns, which is about four times greater than what the market is likely to generate.

FedEx: Wide Moat Industry Giant With Strong Growth Prospects

Founded in 1971 FedEx is one of the world’s largest delivery companies, with a massive global package transportation infrastructure (serving 220 countries and territories) consisting of:

• More than 425,000 employees
• 670 aircraft
• 5,000 hubs and facilities
• 180,000 delivery vehicles

Thanks to this hard to replicate logistics and delivery chain, FedEx can deliver packages (average of 14 million per day) to 92% of the world’s GDP producing areas within 24 to 48 hours and serves every address in the US. Compared to UPS FedEx’s can deliver packages 26% faster which explains why it ground delivery business has gained US market share for 19 consecutive years.

Globally FedEx, UPS and DHL dominate global delivery but in the US FedEx and UPS are an effective duopoly. That’s because in 2009 DHL decided it was too costly to replicate these giants’ American distribution networks and thus abandoned the market. That’s after spending a decade investing billions into a US distribution system and still losing $1 billion in 2007. This shows the incredible power of economies of scale and network effects in parcel delivery that represent one of FedEx’s major competitive advantages. For example, in 2018 FedEx spent $5.7 billion in capex expanding and improving its delivery capabilities. Very few local or global rivals can compete with such massive spending and thus very few try.

The company has built those economies of scale both organically as well as through 23 acquisitions since 1984. That includes the $4.9 billion 2016 purchase of TNT Express. TNT had spent 70 years building itself up into one of Europe’s largest express shippers. FedEx managed to acquire its wide moat delivery network at a very fair price (patiently waited for the Euro to weaken against the dollar). Better yet, once the TNT integration is complete in 2020 management expects to generate annual cost savings of about $1.35 billion.

FedEx is constantly striving to improve its efficiency, including via replacing its older airline fleet with state of the art Boeing 777Fs which burn 18% less fuel. It’s also rapidly investing in automation to allow each of its workers to be more productive, and thus achieve lower per package delivery costs while also being able to maximize market share. For example it’s automated 130 of its sorting facilities so far and plans to eventually automate them all.

Thanks to its economies of scale and strong pricing power from its wide moat brand (one of the most trusted names in shipping) FedEx enjoys above average profitability and returns on capital.

• Gross Margin: 24.5% (Industry average 21.5%)
• Operating Margin: 8.7% (industry average 6.4%)
• Net Margin: 6.5% (industry average 4.0%)
• Return On Invested Capital: 18.7% (industry average 13.1%)

For example its net margin is 63% above those of its peers, and its return on invested capital is 43% better than the industry average. ROIC is a good proxy for quality management that efficiently allocates shareholder resources well. Who leads FedEx to such impressive profitability in an otherwise low margin business? That would be Fred Smith, the company’s founder who also serves as Chairman, CEO and literally invented overnight national delivery back in 1973.

What’s most impressive about FedEx is that despite its massive size it continues to find ways to grow at its historically fast rate. For example in fiscal 2018 revenue rose 8.6% which is slightly better than its 8.1% five year average sales growth rate. Meanwhile EPS soared 52% thanks partially to tax cuts. For 2019 FedEx expects revenue growth to further accelerate to about 9% thanks to the strong economy and continued fast growth in E-Commerce. Better yet, the company is focusing more on its ground delivery business which is higher margin, and thus expects profitability to improve in the coming years. Overall analysts expect FedEx to enjoy long-term revenue growth of 7%, which is in line with its historical norms.

Ongoing cost cutting, a more profitable business mix, and steady buybacks of 1% to 2% per year are expected to translate that into about 13% EPS growth. That’s in line with management’s long-term guidance of 10% to 15% EPS growth. That double digit earnings growth, combined with FedEx’s low payout ratio, means not just strong long-term dividend growth, but also some very impressive market beating total returns are likely for many years to come.