Written by Bob Ciura for Sure Dividend
Investors looking for long-term opportunities should take a closer look at dividend growth stocks. Companies that have durable competitive advantages can raise their dividends each year, even during periods of economic recessions.
This article will take a look at 3 Dividend Aristocrats that have increased their dividends for at least 25 years, and can be held for the long run.
Sysco Corporation (SYY)
Sysco Corporation (SYY) is the largest wholesale food distributor in the United States and is expanding internationally. The company was founded in Houston, Texas, in 1969 and now serves 600,000 locations with food delivery, including restaurants, hospitals, schools, hotels, and other facilities.
On July 30, 2024, Sysco reported fourth-quarter results for Fiscal Year (FY)2024. For the fourth quarter, the company saw a 4.2% increase in sales and a 3.5% rise in U.S. Foodservice volume. Gross profit grew by 4.2% to $3.8 billion, and operating income increased by 1.2% to $977 million, with adjusted operating income climbing 6.4% to $1.1 billion.
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Earnings per share (EPS) fell by 14.6% to $1.23, whereas adjusted EPS rose by 3.7% to $1.39. For the full fiscal year 2024, Sysco’s sales increased by 3.3%, with U.S. Foodservice volume growing by 3.1% and local volumes by 1.1%. EPS increased by 12.1% to $3.89, while adjusted EPS went up by 7.5% to $4.31. Cash flow from operations increased by 4.2% to $3.0 billion, and free cash flow rose by 5.6% to $2.2 billion.
Such strong cash flow has allowed Sysco to increase its dividend for 53 consecutive years. The company has been able to continue increasing its payout even during recessions, due to the stable and defensive nature of its business model.
Sysco has grown earnings by 18% annually over the past five years and earnings growth of 10% over the past nine years. Through acquisitions and share buybacks, SYY has increased its earnings at a high rate in recent years.
Sysco has an economic moat due to its large-scale and entrenched distribution infrastructure, which gives it a cost advantage over most competitors. This moat is evidenced by the company’s double-digit returns on invested capital every year, much higher than its weighted average capital cost.
Thanks to this stability, Sysco has raised its dividend every year since it went public, and we expect it to continue to grow in the years to come.
Genuine Parts Company (GPC)
Genuine Parts Company was founded in 1928 and since that time, it has grown into a sprawling conglomerate that sells automotive and industrial parts, electrical materials, and general business products. Its global span reaches throughout North America, Australia, New Zealand, and Europe and is comprised of more than 3,000 locations.
The company released second-quarter earnings on July 23, 2024, and results were quite weak, missing expectations on both revenue and profits. Adjusted earnings per share came to $2.44, which was 15 cents light of estimates. Revenue was up fractionally to $6 billion, but missed estimates by $40 million. Sales changes were from a 2.2% benefit from acquisitions, partially offset by a 0.9% decline in comparable sales, and a 0.5% unfavorable impact from forex translation and other changes.
Adjusted net income was $342 million, which was essentially flat against the year-ago period. The Automotive segment grew slightly during the quarter, but that was essentially offset by weakness in the Industrial segment.
Earnings-per-share growth has seen stops and starts but over the long-term, Genuine Parts delivers. The company’s businesses are all what could be considered staples as it serves businesses and consumers in areas where there is likely to be demand for the long run. The company’s acquisitions have led the way in terms of growth and will continue to do so moving forward.
Genuine Parts’ payout ratio had been quite steady between 50% and 60% of earnings for many years, but is below that today. We see the dividend rising at roughly the pace of earnings growth, keeping the payout ratio at around half of earnings in the years to come, or slightly lower, consistent with the past decade.
The company’s competitive advantages include its wide array of industries and customers served, geographic reach and the fact that it sells what amount to industrial staples. Genuine Parts is still prone to earnings declines during recessions but performs relatively well; this is a defensive stock for a retailer/wholesaler.
GPC has increased its dividend for 68 consecutive years.
Johnson & Johnson (JNJ)
Johnson & Johnson is a diversified health care company and a leader in the area of innovative medicines and medical devices Johnson & Johnson was founded in 1886 and employs nearly 132,000 people around the world. The company is projected to generate more than $89 billion in revenue this year.
On April 16, 2024, Johnson & Johnson announced that it was increasing its quarterly dividend 4.2% to $1.24, extending the company’s dividend growth streak to 62 consecutive years. On May 31, 2024, Johnson & Johnson completed its $13.1 billion purchase of cardiovascular medical device company Shockwave Medical.
On July 17, 2024, Johnson & Johnson announced second-quarter results for the period ending June 30, 2024. For the quarter, revenue grew 4.3% to $22.4 billion, which was $60 million more than expected. Adjusted earnings-per-share of $2.82 compared to $2.80 in the prior year and was $0.12 ahead of estimates.
Johnson & Johnson has grown earnings over the past 10 years at a rate of 6.3%. The company managed to grow earnings before, during and after the last recession, showing that the company’s products are in demand regardless of market conditions.
We expect earnings-per-share to grow at a rate of 6% per year through 2029 due to gains in revenue, acquisitions, and share repurchases. One major deal that J&J recently completed came on May 31st, 2024, when Johnson & Johnson completed its $13.1 billion purchase of cardiovascular medical device company Shockwave Medical.
This growth should easily allow J&J to continue growing its dividend each year. Johnson & Johnson has a reasonably low dividend payout ratio expected at 50% for 2024. This gives the company ample room to raise its dividend, even in a prolonged recession.
One of Johnson & Johnson’s key competitive advantages is the size and scale of its business. The company is a worldwide leader in a number of healthcare categories. Johnson & Johnson’s diversification allows it to continue to grow even if one of the segments is underperforming.
Disclosure: No positions in any stocks mentioned
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