Dividend aristocrats are a select group of companies which have demonstrated the financial strength to raise dividends over the last 25 consecutive years or more. Among that exclusive bunch, McDonald's (MCD 0.79%), Clorox (CL 2.17%) and Sysco (SYY 2.11%) look particularly attractive with their dividend yields above 3%.
McDividends look tasty
With more than 34,500 restaurants, serving nearly 69 million customers in more than 100 countries each day, McDonald´s is an undisputed leader in the global fast food industry. The company benefits from tremendous scale advantages, privileged locations for its stores around the planet and a globally recognized brand.
McDonald´s operates nearly 80% of its stores via its franchises and affiliates system, and this provides healthy profitability and resilient cash flows through the ups and downs of the economic cycle. The company has an operating margin of 31.3% of sales versus an industry average of 16.3% according to data from Morningstar.
McDonald´s is being challenged by slowing sales growth due to saturated markets and the trend toward healthier eating habits, comparable store sales increased by an uninspiring 0.3% in the first ten months of the year and 0.5% in October. The company is responding with product innovation to accelerate growth, but results have not been very impressive lately.
Decelerating growth seem to be already reflected in its valuation though, the stock is trading at a tempting dividend yield of 3.3%. The house of Ronald McDonald has raised its dividends each and every year since 1976, and the payout ratio around 55.2% of earnings is not excessive at all for such a solid fast food titan.
Shiny dividends from Clorox
Clorox is well-known for its traditional bleach business, but the company has diversified operations in more than 100 countries operating in businesses like home care, which represents 17% of total revenue, laundry (10%), bags and wraps (14%), charcoal (9%), dressings and sauces (4%) and water filtration (4%) among several others.
Through a global portfolio of widely recognized brands like Clorox, Glad, Hidden Valley, Kingsford and Brita among others, Clorox owns the first or second market share position in 90% of the markets in which it does business. Market leadership, brand recognition and economies of scale generate strong competitive advantages for this defensive powerhouse.
Clorox operates in mature and stable industries, this makes it difficult for a company with dominant market share to accelerate growth, but on the other hand it provides stability for its cash flows. Sales increased by 2% in the last quarter due mostly to a 2% volume increase in the household segment volume and a 4% volume increase in the lifestyle category.
Clorox has raised its dividends over the last 36 years in a row, including a generous raise of 11% announced in May of this year. This places the dividend yield at 3% and the payout ratio at a reasonable 60% of earnings.
A succulent dividend yield from Sysco
Sysco enjoys a leadership position in the North American food service distribution industry. This heavyweight champion has approximately 425,000 customers in businesses like restaurants (60% of revenue), hospitals and nursing homes (10%), hotels and motels (5%), schools and colleges (5%) and other segments which together account for the remaining 20% of sales.
The company has an 18% market share in a highly fragmented industry, and this generates considerable advantages when it comes to supply chain and warehouse efficiencies. Sysco has implemented more than 150 acquisitions over the last 40 years, and the company is permanently looking for smaller fish to swallow in order to generate growth and strengthen its leadership position.
The company delivered a healthy increase of 5.7% in revenues during the last quarter to $11.7 billion on the back of a 3% increase in volume (including acquisitions) and a 2.3% contribution from acquisitions. Considering how challenging the economic environment has been during the quarter, Sysco´s strategy of growing via acquisitions seems to be bearing its fruits.
The company has regularly increased dividends on a yearly basis over the last 45 years. The payout ratio is quite high for a company in a cyclical industry near 66% of earnings, so dividend increases will likely continue at a moderate peace in the coming years. This food giant pays a succulent dividend yield of 3.6%.
Bottom line
McDonald´s, Clorox and Sysco are three rock solid companies with compelling divined yields and immaculate track records of growing dividends over the years. They may not be the most exciting growth names in the market, but slow and steady sometimes wins the race, and it certainly can help investors sleep better at night knowing that their capital is well protected.
