A strong business can tell its shareholders that it’s strong, but that doesn’t equate to much. A sure way to signal strength is to give shareholders what they want: Cash. It’s hard to fake cash. The strongest of companies will not only pay dividends but also increase them on a yearly basis. Here are four food companies that have been increasing dividends on a regular basis; better yet, they should be announcing dividend increases shortly.
- Expected increase announcement: September 19-23.
- Current dividend: $2.44 ($0.61/quarter); current yield: 2.74%.
- Increased dividend: 34 straight years.
- One-year growth rate: 10.2%.
- Five-year average growth rate: 27.5%.
- Payout ratio: 48%.
Despite being dethroned as the world’s largest restaurant chain last year by Subway, MCD can still claim to be a blue-chip dividend king. Having not only paid but also increased its dividend for the last 34 years, this Illinois-based mega-chain has been pleasing income investors for some time now. If you’re looking for a wide reach, look no further than the billions of smiles MCD serves up in its 32,943 restaurants located in 117 different countries. Better yet, the corporation only operates about 20% of these sites, allowing them to collect a significant batch of higher margin royalty fees.
Recent investors have been rewarded with a one-year dividend growth rate of 10.2% and a five-year average dividend growth rate of 27.5%. A share bought in 2000 came with a $0.215 yearly dividend; today that has increased more than 10-fold to $2.44 a share. True, past performance is not a guarantee of future gain, but so far MCD has shown its willingness to continuously pad an investor’s pockets. The current yield of 2.74% could use some beefing up and it might just get it with another dividend increase expected in mid-September. Even a modest 8% quarterly dividend jump to $0.66 a share would boost the yield on cost near 3%.
YUM Brands (NYSE:YUM)
- Expected increase announcement: September 12-16.
- Current dividend: $1 ($0.25/quarter); current yield: 1.9%.
- Increased dividend: Seven straight years.
- One-year growth rate: 12.8%.
- Five-year average growth rate: 32.6%.
- Payout ratio: 40%.
This Kentucky-based restaurant conglomerate actually operates more restaurants than MCD (nearly 38,000) and reaches almost as many countries (110). Brands under the YUM umbrella include KFC, Pizza Hut, Taco Bell, Long John Silver’s and A&W All American. On the dividend front, the initial appeal doesn’t appear to stack up against MCD: A 1.9% current yield coupled with just seven years of dividend increases. But YUM is relatively new to the dividend game and appears to making up ground fast.
Last year the 12.8% dividend increase was well received, but still's a far cry from the astounding five-year average dividend growth rate of 32.6%. Moving from 2006 to 2007, for example, investors saw annual dividends jump from $0.265 a share to $0.525; imagine a 98% increase in their yield on cost. Although the huge increases might be a thing of the past, I look for YUM to follow in MCD’s footsteps by solidifying itself as a long-term dividend increaser. After all, the 40% payout ratio suggest sustainability and the demand for chicken, pizza and burritos isn’t going anywhere. In 10 years, that 1.9% current yield could turn in to a 6% yield on cost given the current one-year growth rate. More importantly, a buy before the September dividend increase announcement could add some clams to investor’s dividend yields.
Cracker Barrel Old Country Store (NASDAQ:CBRL)
- Expected increase announcement: September 19-23.
- Current dividend: $0.88 ($0.22/quarter); current yield: 2.17%.
- Increased dividend: Eight straight years.
- One-year growth rate: 2.5%.
- Five-year average growth rate: 10.8%.
- Payout ratio: 22%.
CBRL operates the more than 600 Cracker Barrel Old Country Store Restaurants located in 42 states. This Tennessee-based down-home cookery was established in 1969 and offers much more than biscuits and gravy, including gifts and apparel to cookware and figurines. About 20% of revenue comes from these non-food items. A quick glance to the current yield along with the one-year dividend growth rate and I can hear the income investor scoff already.
But CBRL might just surprise you. The current yield of 2.17% and the one-year dividend growth rate of 2.5% are unimpressive; at that rate it would take 10 years just for CBRL to reach MCD’s current yield. However, the 10.8% five-year average dividend growth rate is much more promising. Analysts like it too, as six brokers come to a collective one-year target upside of about 39%. Even the most pessimistic of the group still expects an 8% price increase. Further, earnings per share are expected to grow at a double digit rate in the coming year and the P/E to growth ratio is nearing 1. What does this mean for income investors? More profit coupled with an already low payout ratio (22%) suggests investors should be clamoring for a larger payout. They should get it too, with an expected dividend increase announcement later this month.
Lancaster Colony Corp (NASDAQ:LANC)
- Expected increase announcement: November 21.
- Current dividend: $1.32 ($0.33/quarter); current yield: 2.26%.
- Increased dividend: 48 straight years.
- One-year growth rate: 6.5%.
- Five-year average growth rate: 4%.
- Payout ratio: 34%.
This Columbus, Ohio-based specialty food producer brings brands such Marzetti, New York and Mamma Bella to the table. Perhaps not overwhelming recognizable, LANC lays claim to having the original Texas Toast. After a glance at the 2.26% current yield and one-year dividend growth rate of 6.5%, income investors might not take a second look.
But LANC has not only paid but also increased LANC's dividend for the last 48 years. This is the longest streak among any type of food company and ranks LANC 15th among every stock out there. True, the 6.5% one-year dividend growth rate is less than impressive; worse, the five-year average dividend growth is even lower, at 4%. But there is something to be said about consistency. The expected increase announcement is more like a foregone conclusion, as LANC has announced a dividend hike on the third Monday of November for at least the last 14 years. Moreover, there is evidence that LANC is working to increase shareholder value outside of its consistent payouts. In 2005, for example, a special dividend of $2 was awarded in conjunction with an increase announcement; nearly tripling the payout for the year. With a 2.26% current yield and a low single-digit growth rate it’s unlikely you’ve found the next flier, but you will beat inflation and the S&P 500.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.