Bamboo investments: Great wealth begins beneath the surface

Imagine a plant that can grow as tall as a six-story building in less than six weeks.

Sounds impossible, doesn't it?

But that's exactly the kind of extraordinary growth researchers have documented in Moso bamboo, a remarkable plant found in the forests of China.

Bamboo is neither a tree nor a shrub. It's actually a member of the grass family. Yet under the right conditions, Moso bamboo can tower more than 75 feet into the air, with new shoots reaching much of their mature height in a matter of weeks.

As impressive as that is though, I’m much more interested in bamboo’s underground network. That’s what’s really worth studying from an investment perspective.

The plant literally stems from a system of rhizomes beneath the dirt that store and transport energy for both mature plants and new shoot production alike. That means it’s nailed an investment truth that so many of us humans struggle with: Build the foundation first, and the growth will follow.

It’s so easy to do the exact opposite, focusing on the hottest stock, highest dividend yield, or latest craze. That mindset requires no work whatsoever, unlike investigating the balance sheet or asking questions like:

Without the right answers, you’re looking at business growth that might reach impressive heights under the right conditions… but can be easily uprooted.

This is why Wide Moat Research prioritizes a Sleep Well At Night (SWAN) approach that targets safe, growing income investments. We don’t want to own fair-weather companies; we want assets that are so grounded they’re exceptionally difficult to topple.

And then we want to build our own “root system” around them – one that allows income to keep growing year in and year out.

I’ve mentioned this before. Most financial publications have, for that matter.

But just because we all talk about Albert Einstein’s (alleged) quote about compound interest being the eighth wonder of the world doesn’t make it any less true. It’s truly an incredibly powerful wealth creation tool.

Take a $10,000 investment that earns 10% annually. After 10 years, even without additional contributions, it’s worth $25,937. After 20, it’s risen to $67,275.

After 30, it’s climbed to a whopping $174,494.

And that’s to say nothing about dividend-paying companies, the best of which offer two compounding engines through:

In the same way bamboo’s underground network supports new shoots, dividend-paying companies support investment growth.

That is to say healthy dividend companies do this. Obviously, there are those that don’t raise their payouts for years on end. Or, worse yet, they overextend themselves and have to cut these “bonuses.”

In those cases, a 9%, 10%, or higher yield means less than nothing. Which is why I prefer to see a growing dividend like the one Nick Ward and I discussed on yesterday’s Wide Moat Show – along with five other undervalued stocks.

Let me introduce you to Stryker Corporation (SYK), which manufactures a variety of medical technologies. This includes orthopedic implants, operating-room and emergency-care equipment, neurotech products, and robotics for use in surgery.

More than 150 million patients every year receive some kind of treatment with or through its products. And Stryker generated about $25 billion in sales last year thanks to its innovative way of encouraging recurring business.

Take its Mako robotic-assisted surgery platform. As the medical community increasingly adopts advanced orthopedics, that means increasing demand for Stryker’s robotic systems, implants, surgical equipment, and related technologies.

This showed up nicely in the company’s second quarter, where organic sales rose 9% year over year – 8.9% domestically and 10.5% internationally. More impressive still was the 9% sales growth in its MedSurg, neurotechnology, and orthopedics businesses.

It’s clear that Stryker’s business is benefiting across the board.

So much so that management narrowed its full-year 2026 organic sales growth guidance from 8.0%–9.5% to 8.3%–9.3%. Importantly, the midpoint increased slightly, reflecting management's confidence in the company's underlying growth trajectory.

In short, demand is healthy, complete with equipment backlogs that will probably only increase from here. And this is on top of a solid financial foundation since Stryker has a net debt to trailing EBITDA (earnings before interest, taxes, depreciation, and amortization) and a BBB+ rating by S&P.

Moreover, its dividend payout ratio is around 25%, leaving plenty of room for both future increases and reinvestment alike.

As for its dividend yield, that’s just 1.3% right now. But don’t scoff at it until you hear how Stryker has increased its dividend for 32 years in a row. That easily makes it a dividend aristocrat, which only requires 25 consecutive years of raises.

I’ll also point out its dividend growth at 7% annually over the past five years. At that rate, Stryker’s payout per share basically doubles after 10 years.

I’m not predicting that pace will continue moving forward, mind you – only that there’s more to dividend growth investing than maximizing today's income. It’s also about understanding tomorrow’s potential when the “bamboo principle” is hard at work behind the scenes.

Despite its positive performance and optimistic expectations, Stryker's stock has pulled back from a high around $392 earlier this year… to around $275.

As such, it’s now trading at 18.4x forward earnings instead of its historical norm of 22.6x.

I assume that this is partially due to a cyberattack back in March that temporarily disrupted Stryker’s sales and shipping capabilities – not its actual production or medical device safety however, for the record. Though perhaps Mr. Market is also concerned about how hospital capital spending can yoyo, even sometimes pertaining to pre-delivery agreements they’ve already made.

But according to my analysis, these challenges are manageable relative to the company's long-term opportunities. And analysts seem to agree, calling for Stryker to achieve annual earnings growth of 10%–12% over the next 3–5 years.

If those expectations materialize, investors could benefit from earnings growth, dividend increases, and a higher valuation multiple. So I'm comfortable applying a Strong Buy rating here, with a 30%–40% annualized total return forecast.

It might be hard to see the forest through the trees on this one. But the most sustainable growth tends to begin with the kind of foundational details Stryker has been and still is exhibiting.

Its strong balance sheet, durable competitive advantages, earnings growth, disciplined capital allocation, dependable cash flow, and dividend growth all indicate how much it can still achieve.

If successful investing is all about identifying the strongest root system, then Stryker seems like a definite contender. I personally see how it would fit into a SWAN portfolio.

One with a bamboo bedrock that’s hard to uproot.

Happy SWAN investing,

Brad Thomas
Editor, Wide Moat Daily