This is a guest contribution by Bob Ciura of Sure Dividend. Sure Dividend helps individual investors build high quality dividend growth portfolios for the long run.
The Dividend Champions have increased their dividends every year for at least 25 years in a row. With their long dividend growth track records, throughout all kinds of crises, including the coronavirus pandemic, the Great Recession, and more, the Dividend Champions can make for good income investments for income investors.
This article will discuss 3 top Dividend Champions with market-beating dividend yields, and high future return potential.
Automatic Data Processing (ADP)
Automatic Data Processing is one of the largest business services outsourcing companies in the world. The company provides payroll services, human resources technology, and other business operations to more than 700,000 corporate customers.
ADP posted second quarter earnings on January 31st, 2024, and results were quite strong. Adjusted earnings-per-share came to $2.13, which was three cents ahead of estimates, and up 9% year-over-year. Net earnings were up 8% to $878 million. Revenue was up 6.4% year-over-year to $4.67 billion, and $10 million ahead of estimates. The company saw organic constant currency revenue rise 6%. Interest on funds held for clients rose 20% year-over-year to $225 million, as market rates remain high relative to recent history.
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In addition, ADP’s earnings are increasingly becoming dependent upon this interest on held funds, so it’s worth watching closely for investors. Average client funds balances actually declined 2% to $32.6 billion year-over-year, while the yield on those funds soared 50 basis points higher to 2.8%.
Automatic Data Processing has compounded its adjusted earnings-per-share at a rate of more than 11% per year over the last decade, which we believe it can come close to matching moving forward. Beyond 2023, we believe the company is capable of delivering 9% annualized growth in earnings-per-share over full economic cycles.
Much of this growth is likely to be driven by the company’s Professional Employer Organization (PEO) Services segment, which continues to deliver very impressive revenue growth. Importantly, this revenue growth has been accompanied by meaningful margin expansion, which means that the segment’s growth has had an outsized impact on the firm’s bottom line.
In addition, the company’s buyback has been a low single-digit tailwind annually for earnings-per-share growth in the past decade, and we expect that will continue moving forward.
ADP has increased its dividend for 49 years and currently yields 2.2%.
Polaris Inc. (PII)
Polaris designs, engineers, and manufactures snowmobiles, all-terrain vehicles (ATVs) and motorcycles. In addition, related accessories and replacement parts are sold with these vehicles through dealers located throughout the U.S. The company operates under 30+ brands including Polaris, Ranger, RZR, Sportsman, Indian Motorcycle, Slingshot and Transamerican Auto Parts.
On January 30th, 2024, Polaris announced Q4 and full year results for the period ending December 31st, 2023. For the quarter, revenue declined 4.8% to $2.29 billion, but this was $50 million more than anticipated. Adjusted earnings-per-share of $1.98 compared unfavorably to $3.46 in the prior year and was $0.62 below estimates. For 2023, revenue grew 4% to $8.9 billion while adjusted earnings-per-share of $9.16 compared to $10.40.
For the quarter, Marine sales fell 41%, On-Road decreased 24%, and Off-Road, the largest component of the company, grew 3%. Sales for Marine and On-Road were once again due to lower volumes. Off-Road benefited from growth in snow, commercial, and utility side-by-sides, offset by weaker performance in recreation. Parts, Garments, and Accessories improved 16%. Gross margin contracted 300 basis points to 20.8%.
Over the long-term Polaris can generate growth via the ongoing replacement need for ATVs, snowmobiles and similar vehicles, continued growth in international markets, bolt-on acquisitions, and margin expansion. This thesis was put on pause in the first half of 2020, but it appears that the company is very much back on track.
Polaris enjoys a competitive advantage through its brand names, low-cost production, and long history in its various industries, allowing the company to be the leader in ATVs and number two in snowmobiles and domestic motorcycles.
On February 2nd, 2023, Polaris raised its quarterly dividend 1.6% to $0.65. The company has increased its dividend for 28 years. PII stock currently yields 2.9%.
Genuine Parts (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. It has about 58,000 employees and trades with a market capitalization of $18 billion, with about $23 billion in annual revenue.
On February 15th, the company reported fourth-quarter earnings. Revenue of $5.6 billion narrowly missed estimates by $60 million, but adjusted earnings-per-share of $2.26 beat by $0.06. Both figures posted year-over-year growth. Quarterly sales rose 1.1% while adjusted EPS increased 10% from the same quarter last year.
GPC expects 2024 to be another year of steady growth. Company management expects revenue growth of 3% to 5% for the full year, along with adjusted diluted EPS of $9.70 to $9.90. The company’s strong profitability allows it to return significant cash to shareholders, through share buybacks and dividends. GPC returned $788 million to shareholders in 2023 through dividends and share repurchases.
Along with quarterly results, GPC increased its quarterly dividend payout by 5% to $1 per share. The company has increased its dividend for 68 years.
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. We are forecasting 6% annualized earnings-per-share growth for the next five years in a continuation of this trend, in addition to positive organic sales in the Automotive segment.
Genuine Parts’ payout ratio has been quite steady between 50% and 60% of earnings for many years, but is well below that today. We see the dividend rising at roughly the pace of earnings growth. GPC stock currently yields 2.8%.
