Tags: kroger | starbucks | aon | dividend | stock

3 Dividend Stocks Growing Their Payouts

3 Dividend Stocks Growing Their Payouts
A Kroger grocery store in Novi, Michigan (Ed Pevos/AP)

Bob Ciura By Tuesday, 28 May 2024 01:19 PM EDT Current | Bio | Archive

Income investors looking for quality dividend stocks have a lot of options. We believe the best way to focus on quality dividend stocks is to look at a company’s history. Companies with long histories of steady dividend growth typically have superior business models and competitive advantages.

One way to do that is to start with the Dividend Contenders, a group of stocks with at least a decade of consecutive dividend increases. These 3 Dividend Contenders pay dividends to shareholders, and have increased their dividends for over 10 years.

Kroger Co. (KR)

Kroger is one of the largest retailers in the U.S. The company has nearly 2,800 retail stores under two dozen banners, along with fuel centers, pharmacies, and jewelry stores in 35 states. The $40 billion company serves about 11 million customers a day.

On March 7th, 2024, Kroger reported fourth quarter 2023 results for the period ending February 3rd, 2024. (Kroger’s fiscal year ends the Saturday closest January 31st.) For the quarter, Kroger reported $37.1 billion in sales, up 6.6% compared to Q4 2022. Excluding fuel, and the 53rd week in FY 2023 which added $2.7 billion to results, sales decreased 0.5% compared to the year ago period. Adjusted earnings-per-share equaled $1.34 compared to $0.99 in 4Q22.

The announced merger with Albertsons is also a major catalyst, as this will see the combined company operating more than 4,996 stores, 66 distribution centers, 52 manufacturing plants, 3,972 pharmacies and 2,015 fuel centers. This behemoth of a corporation would operate across 48 states and the District of Columbia.

Kroger has been prudent about its dividend, with a payout ratio sticking around the 20% to 30% range. The larger capital return focus has been, and likely will continue to be, on share repurchases. We believe this is prudent considering the competitive landscape of Kroger’s industry.

KR has increased its dividend for 17 years and yields 2%.

Starbucks (SBUX)

Starbucks is a giant coffee retailer that now has more than 37,000 stores worldwide. Nearly half of the stores are in the U.S. and nearly 20% of the stores are in China. The company operates under the namesake Starbucks brand, but also holds the Teavana, Evolution Fresh, and Ethos Water brands in its portfolio. The $106 billion market cap company generated $36 billion in annual revenue in fiscal 2023.

In late April, Starbucks reported (4/30/24) financial results for the second quarter of fiscal year 2024 (Starbucks fiscal year ends the Sunday closest to September 30th). Comparable store sales dipped -4% due to a -3% decline in North America and a -6% decline in international markets. Same-store sales in China fell -11%. Adjusted earnings-per-share dipped -8%, from $0.74 in the prior year’s quarter to $0.68.

Starbucks has increased its dividend for 13 years, and currently yields 2.9%. Starbucks sells a highly popular product combined with a well-respected brand. This allows the company to sell its coffee at premium prices and generate repeat business from customers.

Still, the company is somewhat cyclical. From fiscal year 2007 to 2008, earnings-per-share fell -18%, before increasing by 11% and 60% in the following two years. Earnings climbed higher every year since, until 2020 when the company was tested once again, seeing EPS decline -59%. Starbucks is currently offering a dividend yield of 2.9%. Thanks to its decent payout ratio of 63%, its solid balance sheet and its promising growth prospects, the company is likely to keep raising its dividend meaningfully for many more years.

Aon plc (AON)

Aon is a professional services firm headquartered in London, United Kingdom. The company provides a variety of services including consulting, risk management, and health plan management. Aon has approximately 500 offices worldwide that serve 120 countries through a workforce that numbers about 50,000.

Aon posted first quarter earnings on April 26th, 2024. Adjusted earnings-per-share came to $5.66, which missed estimates by 26 cents. Revenue was up more than 5% year-over-year to $4.07 billion, but was $70 million light of expectations.

Organic revenue was up 5% year-over-year, fiduciary investment income was up 1%, and forex added 1%. Acquisitions, divestitures, and other items reduced the top line by 2%.

Between 2011 and 2020, Aon compounded its adjusted earnings-per-share at a rate of nearly 15% per year. Looking ahead, we believe that the company’s growth is likely to continue to be quite strong, albeit a bit slower than its historical pace. More specifically, we are forecasting 11% annualized earnings growth over a full economic cycle.

Management continues to be bullish, and rightfully so, as Aon’s businesses are posting very strong rates of growth, for the most part. We see expense savings as a driver of earnings growth along with the buyback, and organic revenue growth should continue to move the top line higher as well.

AON has increased its dividend for 13 consecutive years while the stock currently yields 1.0%.

Bob Ciura has worked at Sure Dividend since October 2016. He oversees all content for Sure Dividend and its partner sites. Bob received a Bachelor’s degree in Finance from DePaul University, and an MBA with a concentration in Investments from the University of Notre Dame.

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Income investors looking for quality dividend stocks have a lot of options. We believe the best way to focus on quality dividend stocks is to look at a company's history.
kroger, starbucks, aon, dividend, stock
Tuesday, 28 May 2024 01:19 PM
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