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Finance

3 Dividend Growth Stocks to Strengthen Your Portfolio

Investors have historically turned to dividend yielding stocks amid market volatility to avail themselves of a steady stream of income. And while concerns over increasing inflation are making the stock market volatile, turning to reliable dividend stocks that have not only been able to pay dividends during the pandemic-led recession but have also increased their pay-outs over the past few years could be a smart decision.

Investors’ increasing interest in dividend stocks is evident in SPDR S&P Dividend ETF’s (SDY) 11.4% returns over the past three months compared to SPDR S&P 500 ETF Trust’s (SPY) 5.3% gains. The shares of companies that have been able to consistently increase their dividends over the past few years are likely to attract more attention in the coming months because they can protect investors from rising inflation and consequent market volatility.

So, we think it could be wise to bet now on McDonald’s Corporation (MCD), Sysco Corporation (SYY), and Illinois Tool Works Inc. (ITW). Each has an impressive history of increasing dividends.

McDonald’s Corporation (MCD)

World-renowned fast-food company MCD’s restaurants serve locally relevant menus of food and drinks at various price points in more than 100 countries. Its segments include U.S., International Lead Markets, High Growth Markets, and Foundational Markets and Corporate.

The company paid a $1.29 per share quarterly cash dividend on March 15. Over the last five years, MCD’s dividend pay-outs have grown at a 7.9% CAGR. While its four-year average dividend yield is 2.4%, the current dividend translates to a 2.24% yield.

MCD’s revenue for the first quarter, ended March 31, increased 8.7% year-over-year to $5.12 billion. The company’s operating income for the quarter came in at $2.30 billion, which represents a 34.7% increase from the prior-year quarter. The company’s net income was $1.54 billion, up 38.9% year-over-year. Also, its EPS increased 39.5% from the same period last year to $2.05.

For the current quarter, ending June 30, 2021, analysts expect MCD’s EPS to increase 215.2% from the prior-year quarter to $2.08. Its annual revenue is expected to increase 16.6% year-over-year to $22.40 billion in its fiscal year 2021.

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On May 20, 2021, MCD announced that as part of its four-year plan it will increase national investments in diverse-owned companies from 4% to 10% and forge multi-year partnerships with diverse-owned media and production companies, content-creators and influencers, among others. This is further expected to increase the company’s market reach. The stock has rallied 28.2% over the past year to close yesterday’s trading session at $230.15.

It’s no surprise that MCD has an overall A rating, which equates to Strong Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

The stock has an A grade for Quality, and a B grade for Stability, Sentiment and Growth. Click here to see MCD’s ratings for Value and Momentum as well.

MCD is ranked #4 of 47 stocks in the A-rated Restaurants industry.

Sysco Corporation (SYY)

SYY operates as a distributor of food and related products, such as frozen foods, dairy products, imported specialties and fresh produce. It supplies various non-food items also, such as paper products and tableware. The company operates through three segments: Broadline, SYGMA and Other.

The company has consistently increased its quarterly dividend pay-outs for nearly 24 years. Over the last five years, SYY’s dividend pay-outs have grown at an 8.1% CAGR. While its four-year average dividend yield is 2.4%, its current dividend translates to a 2.22% yield. It paid a regular quarterly cash dividend of $0.45 per share on April 1, 2021.

For its fiscal third quarter, ended March 27, SYY’s operating income increased 291.4% year-over-year to $235.92 million. Its net income increased 2,797.2% year-over-year to $88.93 million. And its EPS came in at $0.17, up 1,800% from the same period last year.

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Analysts expect SYY’s EPS to increase 306.9% year-over-year to $0.60 for the current quarter, ending June 30, 2021. Its revenue is expected to increase 59.1% from the prior-year quarter to $14.10 billion in the current quarter. It surpassed the Street’s EPS estimates in three of the trailing four quarters.

This month, the company launched two new online toolkits—Labor & Hiring, and Summer Solutions Toolkits—to its Foodie Solutions platform. These innovative solutions are expected to drive up the company’s revenue. The stock has gained 57.9% over the past year to close yesterday’s trading session at $81.14.

SYY’s POWR Ratings reflects this promising outlook. The stock has an overall A rating, which equates to Strong Buy in our POWR Ratings system. The stock has a B grade for Growth, Quality and Value. Click here  to see the additional ratings for SYY (Stability, Momentum and Sentiment).

SYY is ranked #7 of 81 stocks in the B-rated Food Makers industry.

Illinois Tool Works Inc. (ITW)

Industrial products and equipment manufacturer ITW mainly serves the automotive OEM/tiers, commercial food equipment, construction, general industrial, and automotive aftermarket end markets. Its segments include Automotive OEM, Food Equipment, Test & Measurement and Electronics, and Welding.

The company has declared a $1.14  per share quarterly dividend, payable on July 15, 2021. It equates to $4.56 per share on a full-year basis. ITW’s dividend pay-outs have grown at a 16% CAGR over the past five years and 14.5% over the past three years. While its four-year average dividend yield is 2.3%, its current dividend translates to a 1.96% yield.

ITW’s revenue for its fiscal first quarter, ended March 31, 2021, increased 9.8% year-over-year to $3.54 billion. Its operating income for the quarter came in at $905 million, up 18.9% year-over-year. The company’s net income came in at $671 million, which represents an 18.6% increase from the prior-year quarter. Its EPS increased 19.1% from the same period last year to $2.12.

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The company’s EPS is expected to increase 102% year-over-year to $2.04 for the current quarter, ending June 30, 2021. Its revenue is expected to increase 37.3% from the prior-year quarter to $3.52 billion in the current quarter. It surpassed the consensus EPS estimates in each of the trailing four quarters.

On January 19, 2021, ITW and Amphenol Corporation (APH) entered an agreement under which ITW will acquire MTS Systems Corporation’s (MTSC) Test & Simulation business, following the closing of APH’s acquisition of MTS. E. Scott Santi, ITW’s Chairman and CEO said, “MTS’s Test & Simulation business is highly complementary to our existing Test & Measurement and Electronics business and positions us in new and attractive industry verticals.” The stock has rallied nearly 44% over the past year to close yesterday’s trading session at $232.23.

ITW’s POWR Ratings reflects this promising outlook. The stock has an overall B rating, which equates to Buy in our POWR Ratings system. The stock has an A grade for Quality, and a B grade for Stability and Sentiment. Click here  to see the additional ratings for ITW (Growth, Momentum and Value).

ITW is ranked #24 of 86 stocks in the A-rated Industrial-Machinery industry.

Click here to check out our Industrial Sector Report for 2021


MCD shares were trading at $232.72 per share on Thursday morning, up $2.57 (+1.12%). Year-to-date, MCD has gained 9.12%, versus a 11.20% rise in the benchmark S&P 500 index during the same period.

About the Author: Ananyo Guha Niyogi

Ananyo’s ardent interest in capital markets, wealth management, and financial regulatory issues, led him to a career as an investment analyst. His goal is to educate individual investors by making complex financial issues easy to understand. More…

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