Screening for the Most Predictable Companies with Highest Dividend Growth
Aaron’s Inc. (AAN), a specialty realtor of appliances, furniture, electronics and a variety of other products, tops the list of stocks in this screen. The company has a rapid growth rate of 17.8% annually for revenue over the last 10 years, and 16.1% for EBITDA. Aaron’s began paying a dividend in January 1987 and has consistently paid dividends for 24 years. In 2011, it raised the cash dividend rate by 15% to $0.054, its seventh straight annual increase. It also repurchased 5.1 million shares in 2011 and was authorized to acquire 5.3 million additional shares.
Aaron’s is growing mainly from opening new sales and lease ownership stores, as well as from increased revenue from existing stores. The rate of store opening has been relatively even in recent years: The company added 82 company-operated and lease ownership stores and 49 franchise stores in 2011, and 67 company operated sales and lease ownership stores and 67 franchise stores in 2010.
Another stock the screen generated is multinational beverage company PepsiCo Inc. (PEP). PepsiCo has a dividend yield of 3.1%, with growth of 12% annually, including a 6% increase in 2011. It authorized a further 6% increase for 2012, its 40th consecutive year of dividend growth. Since 2007, the company has returned $30 billion to shareholders through share repurchases or dividends.
PepsiCo uses its operating cash flow to repurchase shares and pay dividends. This cash flow has increased from $6.8 billion in 2009 to $8.9 billion in 2011. It expects to generate $6 billion in 2012, after spending $1 billion in discretionary pension and retiree medical contributions in the first quarter, contributing to a $690 million loss.
Recently, PepsiCo has initiated a special focus on expanding China with a three-year commitment of $2.5 billion. It will introduce new Chinese-inspired products such as hot-and-sour fish soup potato chips and opened its sixth potato new potato-chip plant there in July, according to the Wall Street Journal.
Target (TGT) has paid a dividend every quarter since after its 1967 IPO. Target began paying a dividend in 1998. In 2011, it increased its dividend 23.1%, after increasing it 31% in 2010. Target pays dividends out of its cash flow from operations, which was $5.4 billion in 2011, up from $5.3 billion in 2010. In January, the company also authorized a $5 billion share repurchase plan which went into effect when its $10 billion repurchase plan authorized in 2007 ran out in March. In June, Target increased its dividend 20% to $0.36 per common share.
Target is also a steadily growing company with a 9.3% annual revenue growth rate over the last 10 years and 9.1% EBITDA growth rate over the same period. The company’s sales have continued to be strong, in spite of competition from online retailers. In the first quarter, it increased sales 6.1% to $16.5 billion from the previous year, as well as earnings per share 11.5% to $1.11.
Target has planned to enter the Canadian market in 2013, which cost it $55 million in EBIT in the first quarter, but which would provide additional operating revenue toward sustaining its dividend.
Walmart (WMT) has a dividend yield of 2.2% and returned $11.3 billion to shareholders through dividends and repurchases in 2011. In March 2012, Walmart raised its dividend 9% for fiscal 2013 over its dividend in 2012. For 2013, it expects to pay $5.4 billion in dividends, an increase from $5 billion in 2012.
Walmart uses its operating cash flows to fund operations and global expansion activities, and uses all or part of the remainder to pay its dividend and share buy backs. It had net cash provided by operating activities of $24.3 billion in 2012, $23.6 billion in 2011 and $26.4 billion in 2011.
Walmart has strong and growing operations. In the first quarter both Walmart and Sam’s delivered sales above guidance, and operating income from its international store increased 21.2%. Warren Buffett recently purchased a large portion of Walmart shares in the first quarter of 2012, before the stock jumped more than $10.
To find stocks matching your personal combination of 120 investing criteria, try GuruFocus’ newly updated All-in-One Screener here.