I can be considered a risk-averse investor who values a mix of growth and dividends. High-flying growth stocks may sound sexy, but they also come with higher risks as their valuations may be stretched because there is too much optimism baked into their stock price. What I look for are businesses with a long track record of performance, a brand that is synonymous with quality products or services, and a willingness to pay increasing dividends to their shareholders.
Some may argue that such stocks are boring and deliver unimpressive returns. I beg to differ. If a business can continue to increase its revenue, net income, and dividends over years or even decades, the investor will be rewarded with not just a higher dividend yield, but also a steadily rising share price. Call it the best of both worlds if you will, but the total shareholder return can help you easily beat inflation and provide you with sufficient funds for a happy retirement.
Here are three stocks that satisfy the criteria above that I will not hesitate to buy this year.
Cintas
Cintas (CTAS 0.15%) manufactures and sells uniforms, bathroom supplies, and safety apparel to a wide range of businesses. The business boasts more than 1 million customers in the U.S. and Canada, operates 13 distribution centers, and employs around 43,000 staff. Cintas reported a solid set of financial numbers for its fiscal years 2021 through 2023 (the company has a May 31 fiscal year-end). Total revenue increased from $7.1 billion in 2021 to $8.8 billion in 2023 with net income rising from $1.1 billion to $1.35 billion over the same period. The manufacturing company is also a solid free-cash-flow generator with an average annual free cash flow of $1.26 billion over three years.
This consistent free-cash-flow generation has enabled Cintas to pay out increasing dividends. Its latest quarterly dividend came in at $1.35 per share, a 17.4% year-over-year jump over the prior year. With this increase, the company has raised its dividend without fail over the past five decades. CEO Todd Schneider has projected for revenue to come in between a range of $9.35 billion to $9.5 billion, representing 7% year-over-year growth at its midpoint. With Cintas' wide customer coverage and the U.S. economy expanding at a healthy clip, more businesses should purchase goods from Cintas, thus ensuring the company can continue to grow steadily.
Dover
Dover (DOV 0.59%) is a diversified manufacturer of products ranging from consumable supplies and aftermarket parts to software and digital solutions. Dover has demonstrated steady growth in both revenue and net income from 2020 to 2022. Revenue rose from $6.7 billion in 2020 to $8.5 billion in 2022 while net income surged from $683 million to $1.1 billion over the same period. Like Cintas, Dover is also a consistent free-cash-flow generator, with its average annual free cash flow from 2020 to 2022 coming in at $822.8 million. What's more, Dover is also a Dividend King, having raised its dividend over 68 consecutive years to $0.51 per share in the current fiscal year.
For the first six months of this year, Dover reported flat year-over-year revenue while operating and net income fell by 2.6% and 8.7% year over year to $639.1 million and $470.8 million, respectively. Higher expenses arising from inflation ate into the company's bottom line, but the good news is that free cash flow more than tripled year over year to $348.1 million over the same period. Management believes that 2024 will be better as it has identified multiple growth trends and has increased its manufacturing capacity to take advantage of the recovery. Dover also has a long track record of successful acquisitions dating back to 1955. Last year, the company acquired Malema Engineering and Witte Pumps and Technology. Malema is a designer and producer of high-precision flow measurement and control instruments for the biopharmaceutical, semiconductor, and industrial sectors while Witte manufactures precision gear pumps. The acquisition pipeline is strong for Dover and the company may engage in acquisitions before the end of this year.
Image source: Getty Images.
Walmart
Walmart (WMT -0.08%) is undoubtedly one of the largest retailers in the world with approximately 10,500 stores and clubs in 20 countries around the world and an employee base of 2.1 million. What many investors may not know is that the retailer is also a steady payer of dividends. Its latest annual cash dividend was recently raised by 2% year over year to $2.28. This increase caps an unbroken track record of dividend increases that has lasted 50 years and qualifies the company to be in the ranks of Dividend Kings.
Revenue has also steadily headed up between fiscal 2021 and 2023 (Walmart has a Jan. 31 fiscal year-end). Total revenue, which includes sales and Sam's Club membership fees, rose from $559.2 billion to $611.3 billion over the three years. Net income, however, slipped from $13.5 billion to $11.7 billion because of higher taxation and a rise in selling and administrative expenses. This decline is likely to be temporary, though, as Walmart has the clout to raise prices to offset these cost increases. The retailer is also a veritable cash-flow machine, generating an average annual free cash flow of $16.3 billion from fiscal 2021 to 2023. The first quarter of fiscal 2024 saw a continuation of the trend where expenses have risen more than revenue, but Walmart has continued to churn out free cash flow for the quarter. The company expects consolidated net sales to improve by 3.5% year over year for fiscal 2024 and with its track record of free-cash-flow generation, it's likely the retailer with up its dividend for the 51st consecutive year.
