In the dynamic landscape of investing, Dividend Kings stand as the sturdy oaks in a field of willows, epitomizing both financial resilience and shareholder value. Using GuruFocus' All-in-One Screener, I delve deeper than just dividend yield or growth. I examine each company through the lens of five critical metrics—shareholder yield, three-year share buyback ratio, three-year free cash flow growth rate (per share), payout ratio and percentage trading below the 52-week high—to offer a more comprehensive view of financial health and shareholder friendliness.
Shareholder yield serves as an amalgamation of dividends and share buybacks, providing a holistic picture of how much capital is being returned to shareholders. Moving in sync with this, the three-year share buyback ratio offers valuable insights into a company's consistent commitment to repurchasing its own shares, which is often a strong indicator of management's confidence in the business. A parallel line of thought leads us to the three-year free cash flow growth rate, an indicator that drills down into how efficiently a company is generating free cash flow, which is essentially the lifeblood of any enterprise.
Then comes the payout ratio, a gauge that measures what portion of earnings is being channeled back to shareholders as dividends. While a high ratio may satiate income-focused investors in the short term, it also raises questions about whether the company is reinvesting enough for sustainable growth. Last but not least, we look at the percentage trading below the 52-week high. This metric can signal whether a fundamentally strong Dividend King is currently trading at a discount, potentially offering a lucrative entry point for long-term investors.
Identifying the must-have Dividend Kings
By meticulously evaluating Dividend Kings with a 50-year history against these metrics, we distinguish the must-have stocks from the rest of the pack. These companies are holistic performers that blend stability with growth prospects. So as we venture further into the analysis of these two dividend stocks, remember that this endeavor isn't merely about capitalizing on dividends. It's about comprehending the robust financial scaffolding that makes these companies long-term Dividend Kings.
Genuine Parts
Genuine Parts Co. (GPC, Financial), despite its year-to-date return of -9%, commands attention as a stable play in the volatile retail - cyclical industry. Recent data puts it ahead of 65% of companies in its sector, showing resilience where others falter. With a second-quarter revenue surge to $5.92 billion—a 6% year-over-year jump—Genuine Parts defies gravity, even as it bumps up its full-year outlook.
Granted, the net income slid by 8% and operating income tumbled nearly 10%, but let's not forget the company beat its June 2023 earnings per shares expectations by a stunning 4%. Couple this with a three-year per-share revenue growth rate of 9.1% and a similarly laudable earnings per share growth rate of 23.4%, and you have got a mosaic of metrics that's not easy to ignore. So, why should you keep an eye on this Dividend King?
First off, Genuine Parts ranks better than nearly 74% of companies in its sector for three-year free cash flow per share growth rate—a whopping 23.6%. This prowess in generating cash amplifies its attractiveness. Further, its current price-earnings ratio sits at a modest 18.14, which, given its historical range, indicates that it's reasonably priced. To top it off, the shareholder yield stands at 1.4%, outperforming over half of the companies in its industry. While it may not scream "high returns," this makes Genuine Parts a solid entrant in the cadre of must-have dividend stocks with good growth prospects.
Lowe's Companies
Lowe's Companies Inc. (LOW, Financial) has cemented itself as a dividend king in the retail - cyclical industry, making it one of the must-have dividend stocks for income investors. With a year-to-date return of 17%, Lowe's has showcased resilience even as it reported a year-over-year revenue decline of 9.17%, rounding off at $24.96 billion in August. However, let's not lose sight of the longer-term narrative.
The company's three-year revenue, earnings per share and free cash flow growth rates have been nothing short of stellar. Lowe's flaunts an 18% three-year revenue growth rate per share, better than nearly 80% of companies in its sector. Add to that a 23% earnings growth rate and an astonishing 44% free cash flow growth rate, placing it in the upper echelons of retail performers.
Interestingly, the company has found a silver lining in its Pro sales, driving surprising strength amid the noise. This strategy highlights Lowe's focus on big-ticket items and discretionary spending as critical components of its earnings tapestry. Although top executives have pointed out that rising theft is cutting into earnings, the operating income still stands at a formidable $3.89 billion, down just 8% year over year. The net change in cash saw an overwhelming surge of 128%, rounding to $544 million.
Moreover, Lowe's boasts an aggressive share buyback strategy, ranking better than 98% of its peers with a 7.6 share buyback ratio. Not to be overlooked, its shareholder yield of almost 3% ranks better than 61% of industry players, making it one of the top dividend stocks now. In essence, despite short-term headwinds, the company continues to offer strong shareholder value through its robust financial metrics and strategic focus. Given its proven track record and unwavering commitment to growth and shareholder return, it remains one of the leading dividend stocks with high returns that should not be ignored.
