In fiscal Q1 of 2024, U.S. economic growth slowed more sharply than expected, even as prices continued to rise. Traders are now betting the Fed’s first interest rate cut won't be instituted until September at the earliest, with speculations now centering around only one or two cuts, as opposed to the three that were predicted at the beginning of the year.
With this economic uncertainty translating into heightened volatility in the stock market, dividend stocks emerge as a pillar of stability. They provide a consistent flow of income, making them an attractive choice for investors seeking a buffer against extreme market volatility.
Here are three high-quality dividend stocks - Target Corporation (TGT), Republic Services, Inc. (RSG), and The Brink's Company (BCO) - that demonstrate steady earnings growth and generate ample free cash flow, ensuring their ability to sustain dividend distributions over the long term.
Dividend Stock #1: Target Corporation
Headquartered in Minnesota, Target Corporation (TGT) is a well-known general merchandise retailer. With a market cap of $75.9 billion, the company operates approximately 1,956 stores across the U.S. In addition to stores, the company extends its reach through digital platforms like Target.com, offering customers convenient access to various products.
Shares of Target are up 15.5% on a YTD basis, outperforming the broader S&P 500 Index’s ($SPX) gain of nearly 7% during the same time frame.
Target's rock-solid track record of 55 years of consecutive dividend increases has earned it the prestigious title of "Dividend King." Last month, the company declared a quarterly dividend of $1.10 per share, payable to its shareholders on June 10. The upcoming dividend payout represents Target's 227th consecutive dividend payment since it became a publicly traded company in October 1967. The company offers an annualized dividend of $4.40 per share, resulting in a dividend yield of 2.66%. Also, the company maintains a healthy dividend payout ratio of 48.6%.
In terms of valuation, the stock is trading at 17.73 times forward earnings and 0.71 times sales, which are lower than its own five-year average multiples.
Target’s shares soared after its Q4 earnings, reported on March 5, beat Wall Street projections. Its total revenue of $31.9 billion was in line with Wall Street estimates, while Target's adjusted EPS of $2.98 grew 57.7% annually, beating analyst forecasts by a notable 23.7%. Moreover, its cash and cash equivalents rose to $3.8 billion as of Feb. 2024.
Looking ahead, for fiscal Q1 2024, management anticipates both EPS to range between $1.70 and $2.10. For fiscal 2024, Target forecasts a slight growth in comparable sales, ranging from flat to 2%, while its EPS are expected to range between $8.60 and $9.60.
Analysts tracking Target expect the company’s profit to reach $9.39 per share in fiscal 2024, up 5% year over year, and grow a further 12.5% to $10.56 in fiscal 2025.
Target stock has a consensus “Moderate Buy” rating. Out of the 30 analysts offering recommendations for the stock, 15 analysts recommend a “Strong Buy,” four analysts advise a “Moderate Buy,” and the remaining 11 give a “Hold” rating.
The average analyst price target for the stock is $183.43, indicating a potential upside of 11.3% from current price levels. However, the Street-high price target of $220 suggests that the stock could rally as much as 33.5%.
Dividend Stock #2: Republic Services
Arizona-based Republic Services, Inc. (RSG), boasting a market cap of over $60.9 billion, is a trusted leader in the environmental services industry, with a vast clientele of 13 million customers and operating a fleet of 17,000 trucks. The company offers a comprehensive range of services, including advanced recycling, solid waste management, treatment, and disposal of special and hazardous waste, as well as equipment rental and cleaning.
Like Target, Republic Services stock has outshined SPX’s gain on a YTD basis, surging 16.5%.
Earlier this month, Republic Services paid its shareholders a quarterly dividend of $0.535 per share. It offers an annualized dividend of $2.14 per share, resulting in a dividend yield of 1.08%. Furthermore, the company maintains a conservative dividend payout ratio of 36.6%, which allows sufficient flexibility for growth initiatives and potential dividend enhancements in the future.
Moreover, during fiscal 2023, the company returned approximately $900 million to its shareholders.
In terms of valuation, the stock is trading at 31.74 times forward earnings and 4.04 times sales, roughly in line with peers like Waste Management (WM).
The company reported a Q4 2023 adjusted profit of $1.41 per share on Feb. 27, up 24.8% annually to surpass Wall Street estimates by 10.2%. Its revenue of $3.8 billion topped analyst predictions by 2.6%. Republic Services’ adjusted EBITDA increased 18.7% year over year to $1.1 billion.
Republic’s president and CEO Jon Vander Ark, highlighted that throughout 2023, the company achieved double-digit growth in revenue, EBITDA, earnings, and free cash flow, all while maintaining investments in the business to drive profitable growth.
For fiscal 2024, management expects revenue to range between $16.1 billion and $16.2 billion. Adjusted EBITDA is expected to be between $4.8 billion and $4.9 billion, while adjusted EPS is forecast to range between $5.94 and $6 billion. Republic Services also anticipates adjusted free cash flow between $2.1 billion and $2.2 billion, with acquisitions totaling at least $500 million.
Analysts tracking Republic Services expect the company’s profit to reach $6.01 per share in fiscal 2024, up 7.1% year over year, and grow another 11.5% to $6.70 for fiscal 2025. The company is expected to release its Q1 earnings result on Tuesday, April 30, after the market closes.
Republic stock has a consensus “Moderate Buy” rating. Out of the 18 analysts offering recommendations for the stock, seven analysts recommend a “Strong Buy,” one advises a “Moderate Buy” rating, and 10 give a “Hold” rating.
The average analyst price target of $201.65 indicates a potential upside of 5% from current price levels. However, the Street-high price target of $230 suggests a 19.8% upside potential.
Dividend Stock #3: The Brink's Company
The Brink's Company (BCO), based in Virginia, specializes in secure transportation, cash management, and various security services on a global scale. Valued at approximately $3.9 billion, the company caters to a diverse clientele, including banks, financial institutions, retailers, government agencies, mints, jewelers, and other commercial entities.
Over the past six months, Brink’s shares have surged 34%, compared to the SPX’s 23.3% gains over the same period.
Last month, Brink's paid its shareholders a quarterly dividend of $0.22 per share. It offers an annualized dividend of $0.88 per share, resulting in a dividend yield of 1.01%. The company maintains a low dividend payout ratio of 12.07%.
In terms of valuation, the stock is trading at 11.90 times forward earnings and 0.82 times sales, which are lower than both the security and alarm services industry averages and the stock’s own five-year averages.
Shares of Brink’s surged 4.2% on Feb. 29 after the company’s Q4 earnings surpassed Wall Street estimates.
Its revenue of $1.3 million marginally exceeded analyst estimates, while non-GAAP EPS of $2.76 surpassed predictions by a notable 10.8%. During fiscal 2023, the company’s free cash flow before dividends stood at $392.6 million, up 93.4% year over year.
For fiscal 2024, management projects the company’s revenue to range between $5.1 billion and $5.2 billion, adjusted EBITDA to be between $935 million and $985 million, and non-GAAP EPS to range between $7.30 and $8. Moreover, free cash flow is projected to be between $415 million and $465 million.
Analysts tracking the company expect its profit to grow 2.2% year over year to $7.51 per share in fiscal 2024, and grow a further 29.3% to $9.71 for fiscal 2025. The company is expected to release its Q1 earnings results on Wednesday, May 8, before the market opens.
Brink’s stock has a unanimous "Strong Buy" rating from the two analysts covering it.
The average analyst price target of $106.50 indicates a potential upside of 20% from the current price levels. The Street-high price target of $110 suggests a roughly 24% upside potential.
On the date of publication, Sristi Suman Jayaswal did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
