Every investor loves seeing dividends flow into their bank account. There are numerous companies that cut a check for investors every quarter, and these dividends act as a useful source of passive income that you can use to augment your earned income. If you intend to build a collection of dependable dividend stocks, you should look out for businesses with a strong business model and brands. They should also be generating healthy free cash flow and be willing to pay a portion of their profits out as dividend payouts.
Receiving a dividend, however, is just one aspect you should look at when evaluating whether you should purchase a dividend stock. As an income investor, you should prioritize companies that have a track record of increasing their dividends over the years. These increases will not only put more money in your pocket but also help you to beat the effects of inflation.
If you have some spare cash, here are three attractive dividend stocks where you can park your money.
Lancaster Colony
Lancaster Colony (NASDAQ: LANC) is a manufacturer and marketer of specialty food products serving the retail and food service sectors. Several well-known brands and products include Marzetti salad dressings and dips and Sister Schubert’s homemade rolls. Lancaster Colony demonstrated steady growth over the years, with both revenue and net income posting healthy increases. Net sales came in at $1.68 billion in fiscal 2022 (ended June 30) and increased to $1.87 billion by fiscal 2024. Net income went from $89.6 million to $158.6 million over the same period but was impacted by annual restructuring and impairment charges. Excluding these charges, net income still climbed from $124.8 million in fiscal 2022 to $173.5 million in fiscal 2024. The business also saw its cash flow situation improve sharply over these three years. Lancaster Colony generated a negative free cash flow of $30.2 million in fiscal 2022 but has reversed this in fiscal 2024 to a positive cash flow of $184 million.
The company has a long history of paying out higher dividends. Its most recent dividend increase was for fiscal 2024, when the directors declared a cash dividend of $0.90 per share, marking 61 unbroken years of dividend increases, a feat equaled by just 12 other U.S. companies. CEO David Ciesinski believes that the company can continue to grow as the business positions itself for fiscal 2025. Lancaster Colony’s licensing program should deliver healthy volume growth, while management expects increased sales from new products and flavors introduced in the prior fiscal year.
The company also partnered with restaurant chain Texas Roadhouse to introduce not just the latter’s iconic steak sauces but also their popular bread rolls. The food service segment also expects growth to be led by several quick-service restaurant customers that are expanding their operations. Lancaster Colony recently implemented a new enterprise resource planning (ERP) system and will work to leverage its capabilities to enhance the business’s supply chain efficiency and reduce costs. With good prospects for increasing its top and bottom lines, investors can be confident that Lancaster Colony can continue to increase its dividends in the future.
Colgate-Palmolive
Colgate-Palmolive (NYSE: CL) is a global consumer healthcare company with a portfolio of oral care, personal care, and home care products. The business sells well-known brands such as Colgate, Protex, Sanex, Meridol, Softlan, and Ajax. Colgate-Palmolive holds the No. 1 market share for toothpaste and is No. 2 in mouthwash and liquid fabric conditioners. The consumer giant managed to grow its sales from $17.4 billion in 2021 to $19.5 billion in 2023. Net income increased at a slower pace, going from $2.2 billion to $2.3 billion over the same period. Importantly, the business generated an average annual free cash flow of $2.5 billion, supporting its ability to continue increasing its dividends. Colgate-Palmolive has an impressive track record of 61 years of dividend increases, with its most recent being a 4.2% year-over-year increase in the quarterly dividend to $0.50. This increase marks the 62nd consecutive annual dividend increase.
The company has continued to post encouraging results for the first half of 2024. Revenue rose 5.5% year over year to $10.1 billion while operating income improved by 13.6% year over year to $2.1 billion. Net income, after excluding post-retirement costs, climbed 21.8% year over year to $1.5 billion. The business continued generating healthy positive free cash flow of $1.4 billion for the half year.
Management will utilize advanced analytics to analyze each stock-keeping unit (SKU) to gain better insights. The team has developed an analytics tool that provides real-time diagnostics to enable scenario planning to better help the marketing and sales teams plan their campaigns. By using this tool, the company has identified areas where prices can be increased without sacrificing volume. With more data flowing in to be mined, the system can help to make better pricing and product choices and assist Colgate-Palmolive in achieving better sales outcomes along with higher margins. All these moves will translate into healthier free cash flows that will continue to lift dividends higher over time.
Clorox
Clorox (NYSE: CLX) is well-known for its range of cleaning and disinfecting products, such as bleach, sold under its signature brand name, Pine-Sol, and Liquid-Plumr. The business also sells household items such as pitchers, food protection products, and condiments. Clorox has done well in increasing its net income over the past three years despite flat revenue and the aftereffects of last year’s cyberattack. Last year’s cyberattack forced the company to take systems offline and led to significant operational disruption. By the end of fiscal 2024 (also ending June 30), Clorox had fully restored distribution losses and recouped a majority of its market share.
Net sales stayed flat from fiscal 2022 to fiscal 2024 at close to $7.1 billion. However, the business managed to increase its gross margin from 35.8% to 43% over this period, resulting in gross profit climbing from $2.5 billion to $3 billion. Net income, after adding back exceptional, one-off items, increased from $462 million in fiscal 2022 to $$691 million in fiscal 2024. Clorox also generated healthy, positive free cash flow for all three fiscal years. This consistent free cash flow generation has enabled the company to pay an increasing dividend over the years. From fiscal 2014 to fiscal 2024, the quarterly dividend was raised from $0.74 to $1.22 per share.
There could be more to come for Clorox as it continues with research and development activities and launches new products to keep customers loyal. During fiscal 2024, the company released Pine-Sol concentrated multisurface cleaner and Brita Refillable Water Filtration System along with seven new Hidden Valley Ranch condiment flavors. These new products should help to grow Clorox’s sales, while the completion of the company’s streamlined operating model will not only boost gross margins but enable the business to respond more quickly to changing consumer behaviors, allowing it to adapt better and faster.
Clorox also has its ongoing IGNITE strategy that promises to fuel further growth through innovation, cost savings, and the leveraging of technology. The strategy will also convert data into useful and actionable insights to help personalize brands and enhance customers’ shopping experience. These moves should come together to help consumers view Clorox as a reliable brand with a suite of innovative products that they need to purchase. Investors can look forward to a steady increase in dividends as Clorox delivers on its strategy to produce revenue, net income, and free cash flow growth.
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Royston Yang has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
The Smartest Dividend Stocks to Buy With $10,000 Right Now was originally published by The Motley Fool
