Every investor likes to see dividends flowing into their bank account. Many companies pay investors a check each quarter, and these dividends provide a useful source of passive income that you can use to increase your earned income. If you intend to build a collection of reliable dividend stocks, you should look for companies with strong business models and brands. They should also generate healthy free cash flow and be willing to pay out some of their profits in the form of dividend payments.
However, receiving a dividend is just one aspect you need to consider when evaluating whether to buy a dividend stock. As an income investor, you should prioritize companies that have a history of increasing their dividends over the years. These increases will not only put more money in your pockets, but will also help you 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 distributor of specialty food products serving the retail and foodservice industries. Several well-known brands and products include Marzetti dressings and dips and Sister Schubert’s homemade dinner rolls. Lancaster Colony has demonstrated consistent growth over the years, with revenue and net profit recording healthy increases. Net sales were $1.68 billion in fiscal 2022 (ended June 30) and increased to $1.87 billion in fiscal 2024. Net income increased 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 company also saw its cash position s improve significantly over these three years. Lancaster Colony generated negative free cash flow of $30.2 million in fiscal 2022, but reversed that trend in fiscal 2024 to positive cash flow of $184 million.
The company has a long history of paying higher dividends. Its most recent dividend increase came for fiscal 2024, when directors declared a cash dividend of $0.90 per share, marking 61 uninterrupted years of dividend increases, a feat matched by only 12 other companies American. CEO David Ciesinski believes the company can continue to grow as the company positions itself for fiscal 2025. Lancaster Colony’s licensing program is expected to generate healthy volume growth, while management expects an increase in sales thanks to new products and flavors introduced during the previous financial year.
The company has also partnered with a restaurant chain Texas Truck Stops to showcase not only the latter’s signature steak sauces, but also their popular dinner rolls. The foodservice segment also expects growth to be driven by several quick-service restaurant customers expanding their operations. Lancaster Colony recently implemented a new enterprise resource planning (ERP) system and will work to leverage its capabilities to improve the efficiency of the company’s supply chain and reduce costs. With good prospects for growing its revenue and earnings, investors can be confident that Lancaster Colony can continue to grow its dividends in the future.
Colgate-Palmolive
Colgate-Palmolive (NYSE:CL) is a global consumer healthcare company offering a portfolio of oral care, personal care and home care products. The company sells well-known brands such as Colgate, Protex, Sanex, Meridol, Softlan and Ajax. Colgate-Palmolive has the No. 1 market share in toothpaste and is No. 2 in mouthwash and liquid fabric softeners. The consumer giant managed to grow its sales from $17.4 billion in 2021 to $19.5 billion in 2023. Net profit grew at a slower pace, from $2.2 billion to $2.3 billion over the same period. Importantly, the company generated an average annual free cash flow of $2.5 billion, allowing it to continue increasing its dividends. Colgate-Palmolive has an impressive 61-year history of increasing dividends, the 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 continued to post encouraging results for the first half of 2024. Revenue increased 5.5% year-over-year to $10.1 billion, while operating profit increased improved by 13.6% year-on-year to reach $2.1 billion. Net profit, after excluding post-retirement costs, climbed 21.8% year-over-year to $1.5 billion. The company continued to generate a healthy positive free cash flow of $1.4 billion for the half.
Management will use advanced analytics to analyze each stock keeping unit (SKU) to gain better insights. The team developed an analytics tool that provides real-time diagnostics to enable scenario planning to better help marketing and sales teams plan their campaigns. Using this tool, the company identified areas where prices can be increased without sacrificing volume. With more data to leverage, the system can help make better pricing and product choices and help Colgate-Palmolive achieve better sales results and higher margins. All of these moves will result in healthier free cash flow that will continue to grow dividends over time.
Clorox
Clorox (NYSE:CLX) is well known for its line of cleaning and disinfection products, such as bleach, sold under its flagship brand, Pine-Sol and Liquid-Plumr. The company also sells household items such as pitchers, food protection products and condiments. Clorox has done well to grow its net income over the past three years despite stagnant revenues and the aftermath of last year’s cyberattack. Last year’s cyberattack forced the company to take its systems offline and caused significant operational disruption. By the end of fiscal 2024 (also ending June 30), Clorox had fully recovered its distribution losses and regained the majority of its market share.
Net sales remained stable from fiscal 2022 to fiscal 2024, at nearly $7.1 billion. However, the company managed to increase its gross margin from 35.8% to 43% during this period, which increased gross profit from $2.5 billion to $3 billion. Net income, after adding one-time and one-time 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 exercises. This consistent generation of free cash flow has allowed the company to pay an increasing dividend over the years. From fiscal 2014 to fiscal 2024, the quarterly dividend increased from $0.74 to $1.22 per share.
There could be more to come for Clorox as it continues research and development and launches new products to retain customers. In fiscal 2024, the company launched Pine-Sol Concentrated Multi-Surface Cleaner and Brita Rechargeable Water Filtration System as well as seven new Hidden Valley Ranch condiment flavors. These new products are expected to help increase Clorox’s sales, while the completion of the company’s streamlined operating model will not only increase gross margins, but also allow the company to respond more quickly to changing customer behaviors. consumers, thus allowing it to adapt better and more quickly.
Clorox also has its IGNITE strategy underway that promises to fuel more growth through innovation, cost savings and leveraging technology. The strategy will also convert data into useful, actionable insights to help personalize brands and improve the customer shopping experience. These measures should come together to help consumers see Clorox as a reliable brand with a range of innovative products that they should purchase. Investors can expect steadily increasing dividends as Clorox implements its strategy to generate growth in revenue, net income and free cash flow.
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*Stock Advisor returns October 14, 2024
Royston Yang has no position in any of the stocks mentioned. The Motley Fool has no position in any of the securities 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
