With a number of macro adversities, investing in the stock market can be complex, especially if looking for long-term growth and sustainable dividends. With hundreds of stocks to choose from, it can be time-intensive to determine which ones will provide the best returns. However, by analyzing companies' financial performance, strategic initiatives and operational efficiency, investors can identify stocks with a progressive trajectory for sustainable growth.
As such, I will take a look at three top stocks well-positioned for long-term dividend and value growth. These companies have shown strong financial performance, a commitment to dividends and strategic initiatives to expand their portfolios and improve operational efficiency. Further, I will explore the specific fundamentals of each company's financial performance, initiatives and projections, providing investors with valuable insights into these companies for long-term growth and sustainability.
Diamondback Energy
Diamondback Energy Inc. (FANG, Financial) has consistently demonstrated strong operational performance, generating record Ebitda and free cash flow in 2022.
The company's commitment to returning at least 75% of free cash flow to stockholders through dividends is a testament to its focus on creating value. The dividend per share growth of 28.24%, well above the sector median of 13.62%, also points to its strong financial performance.
Diamondback Energy's leverage ratio is below 1, and it plans to reduce it further with free cash flow and non-core asset sales. In the fourth quarter, the company returned $5.65 per share, a 54% year-over-year growth, totaling $11.31 per share in dividends.
Source: Investor presentation
Meanwhile, Diamondback Energy has set ambitious targets for 2023, indicating its confidence in executing its plans successfully. The company is forecasting full-year oil production guidance of 256,000 to 262,000 barrels of oil per day, with plans to drill between 325 and 345 gross wells and an average lateral length near 10,500 feet. Thus, the company appears to be focused on expanding its portfolio and streamlining its operations.
In addition, the company has divested non-core assets, completing the equity ownership (10%) sale in the Gray Oak crude oil pipeline for $180 million and selling over 19,000 net acres for $439 million. As a result, Diamondback Energy plans to achieve its non-core asset sale target of at least $1 billion by the end of 2023, further strengthening its financial flexibility.
Furthermore, the company's strategic acquisitions in the Midland Basin, Lario and FireBird regions have added over 500 high-quality opportunities and 83,000 net acres to the portfolio, solidifying its size and scale. As a result, it could help the company increase its oil production and create new growth opportunities.
Overall, it is important to note the oil and gas industry is subject to various risks and uncertainties, including commodity price volatility and regulatory changes. However, Diamondback Energy's strong financial performance and strategic initiatives have positioned it well for long-term growth and sustainability of dividends and valuation.
Honeywell International
Honeywell International Inc. (HON, Financial) is well-positioned for 2023 as the global conglomerate anticipates strong growth and sustainability in its long-term financial performance. With an aggressive 10-year dividend growth rate of 9.27%, the company is poised to deliver consistent returns to its investors.
Looking ahead to 2023, Honeywell expects sales to be between $36 billion and $37 billion, with organic growth projected at 2% to 5%. This growth is supported by a record backlog and ongoing end-market strength, particularly in long-cycle businesses. In addition, despite potential headwinds in the first half of the year due to decreased orders in SPS and HBT, Honeywell sees tailwinds for the second half, indicating a sustainable trajectory for its growth.
Source: Earnings presentation
Additionally, Honeywell's segment margin is expected to expand by 50 to 90 basis points, with a target range of 22.2% to 22.6%, indicating an overall improvement in operational efficiency. The company's adjusted earnings per share are projected to be $8.80 to $9.20, with an adjusted earnings growth rate of 0% to 5%, indicating a stable and consistent financial performance. It is also commited to deploying at least $25 billion between 2022 and 2024.
Furthermore, Honeywell's recent elimination of funding obligations after buying out the NARCO Trust for $1.32 billion has simplified its balance sheet and eliminated quarterly asbestos charges, reducing the net free cash flow impact by about $300 million. The sale of Harbison-Walker International to private equity firm Platinum Equity further boosted the company's financial strength. These actions demonstrate its commitment to long-term financial sustainability and growth.
Honeywell's commitment to sustainable solutions, including commercial aerospace and building technologies, aligns with growing demand for environmentally responsible investments. The company's strong operational performance and commitment to sustainable growth position it well for long-term success.
CSX
CSX Corp. (CSX, Financial) is on track for expansion with an impressive dividend per share growth rate of 8.15%, above the sector median of 6.18%. Its commitment to prioritizing its balance sheet, optimizing assets, exercising disciplined cost control and providing excellent customer service has been the key to its success.
The company's financials include $2.1 billion in cash and investments. The fourth-quarter earnings call revealed a positive outlook, with expected GDP volume gains supported by actual merchandise and coal growth. While international intermodal faces near-term headwinds, CSX is focused on efficiency gains, with asset productivity expected to exceed prior record levels. Capital expenditures are expected to be around $2.3 billion, with increased spending for strategic projects.
Source: Earnings presentation
Additionally, CSX reported a 9% increase in quarterly revenue to $3.7 billion, driven by fuel surcharges, strong core pricing and higher storage and other revenue. The company's full-year revenue of nearly $15 billion increased by almost 20% compared to the previous year. As a result, CSX's earnings per share rose by 17% to 49 cents for the quarter and by 16% to $1.95 for the entire year.
Furthermore, CSX is focused on leveraging its industry-leading service to drive growth opportunities in merchandise and export coal volumes. The company is also pursuing initiatives to bring new solutions to its customers, such as accelerating truck-to-rail conversions to reduce its emissions.
Finally, with a renewed focus on customer service and employee satisfaction, CSX aims to build a One CSX culture that leverages common goals and values relationships. The company's commitment to sustainability, financial performance and growth potential makes it a potentially attractive investment opportunity for long-term dividend growth and value creation.
