Dividends are a great reason for owning stocks in the long run. These discretionary payouts have the potential to rise over time, thereby giving you an increasing flow of passive income that helps to supplement your earned income. Dividend stocks are a great addition to any investment portfolio as these payments not only fatten your wallet but also represent a tangible return on your investment.
But before you dive in to scoop up some dividend stocks, it's important to have a checklist of what to look out for. You should target companies with strong brands and franchises in stable, mature industries that churn out copious and reliable free cash flow. These businesses should also ideally have a long track record of increasing their dividends through good times and bad. With such stocks in your portfolio, you can count on them for steady dividends while enjoying a peaceful night's sleep.
Here are three attractive dividend stocks that you can own in your portfolio for years or even decades.
Hormel Foods (HRL 0.53%) is a 132-year-old branded food company that sells its products in more than 80 countries worldwide. Some of its well-known names include Planters, Skippy, SPAM, and Natural Choice. The business has exhibited steady growth over the past three fiscal years (ended Oct. 31), with net sales rising from $9.6 billion to $12.5 billion from fiscal 2020 to 2022.
Over the same period, net income climbed from $908.1 million to $1 billion. Hormel Foods also generated positive free cash flow in all three fiscal years with an average free cash flow of $795.4 million per year. Investors should also be impressed by the consistent growth in annual dividends stretching as far back as 1989. Back then, the split-adjusted annual dividend stood at just $0.0138 and has increased to $1.04 in 2022.
For the first nine months of its fiscal 2023, Hormel saw net sales dip by 2.9% year over year to $8.9 billion with net income falling by 9.4% to $597.6 million. The decline was caused by overall lower volumes across its retail, food service, and international channels as people purchased less because of high inflation.
Despite the dip in profits, free cash flow for the period remained strong at $565.5 million although it was a slight 1.6% fall from the prior year's $575 million. The company continued to grow its core brands and expand its leadership in the food service segment, delivering volume growth for its premium offerings such as bacon, breakfast sausage, and pizza toppings.
Hormel Foods is also pushing on with its international expansion. Its food service sales in China leapt 14% year over year and it launched Skippy peanut butter in Germany. With these growth initiatives in place along with the continued free-cash-flow generation, investors should rest assured that the company can continue to increase its dividends in the foreseeable future.
Genuine Parts (GPC 1.31%) was founded nearly a century ago and distributes automotive and industrial replacement parts to global customers in more than 10,000 locations in 17 countries. Like Hormel, Genuine Parts also saw steady growth in both its top and bottom lines over the past three years. From 2020 to 2022, net sales increased from $16.5 billion to $22.1 billion with net income (excluding restructuring and impairment expenses) growing from $527.6 million to $1.2 billion. The company generated an average free-cash inflow of $1.3 billion over the same period.
The business also has an enviable track record of 67 consecutive annual increases in its dividend, making it a Dividend King. For 2023, Genuine Parts announced a 6% year-over-year increase in its annual dividend to $3.80 per share.
In the first half of 2023, Genuine Parts' sales rose 7.2% year over year to $11.7 billion with net income increasing by 5.5% year over year to $648 million. Both its automotive and industrial segments recorded year-over-year increases in sales and segment profit, thus attesting to the strength of its business model. The business also generated positive free cash flow of $251.6 million during the period.
Genuine Parts has a strong track record of acquisitions and divestments that resulted in the robust business model it enjoys today. The company will tap into data and analytics to better understand its customer base and drive sales growth. It will also enhance its technological capabilities to improve productivity and deliver better customer outcomes while modernizing its supply chain to lower costs and increase efficiency.
With these strategies in place and armed with an enviable record of free-cash-flow generation, Genuine Parts looks poised to continue its stellar track record of increasing its dividends.
Lancaster Colony (LANC 1.43%) makes and sells specialty foods such as flatbread, grains, dressings, and sauces under its Marzetti, Flatout, Reames, Angelic Bakehouse, and Girardi's brands. The company reported an encouraging set of results for its fiscal 2023 ending June 30.
Sales increased by 8.7% year over year to $1.8 billion while net income climbed 24.2% to $111.3 million. Free cash flow went from negative to positive in fiscal 2023, coming in at $135.7 million. Lancaster Colony is also a Dividend King -- its latest annual dividend increase to $3.40 per share marks six decades of uninterrupted dividend increases.
The company has a proven track record of growing through acquisitions by purchasing brands such as Chatham Village and Flatout to add to its portfolio of brands. Revenue enjoyed a compound annual growth rate of 11% from fiscal 1972 through to 2022.
There could be more growth in Lancaster Colony's top and bottom lines as the company undertakes several strategic growth initiatives. Value engineering is being employed to simplify its supply chain, lower costs, and increase profitability while strategic procurement should result in more favorable cost bidding with extended payment terms. The company is also significantly ramping up its production capacity for dressings and sauces in anticipation of higher demand.
Investors can look forward to better financial numbers and the continuation of dividend increases that Lancaster Colony has become known for over the years.