Over the past two years, Americans have witnessed inflation soaring to a 40-year high, with households feeling the pinch of increased prices of goods and services. Retirement planning is crucial as the cost of living is rising every year. Investors must look to secure their retirement with a steady flow of income through investments in fundamentally strong dividend-paying stocks.
Amid this backdrop, it could be worth buying Darden Restaurants, Inc. (DRI) and Victory Capital Holdings, Inc. (VCTR), given their impressive dividend yields.
Before diving deeper into the fundamentals of these stocks, let’s discuss why having a stable income for retirement is essential.
Over time, inflation and the cost of living erode the purchasing power of our savings. Also, to maintain our desired lifestyle, we need to have a stable source of income during our retirement years. Investing in income-generating assets is necessary to achieve financial security post-retirement.
Investing in fundamentally strong dividend-paying stocks could help take care of a person’s financial security post-retirement. Dividend stocks can generate solid returns not only through capital appreciation in the long term but also through consistent dividend payments regardless of economic cycles.
Dividend stocks are also a perfect hedge against inflation, making them a strategic investment for individuals planning their retirement.
Despite the uncertain macroeconomic conditions, investors’ interest in dividend stocks is evident from the SPDR S&P Dividend ETF (SDY) 14.4% returns over the past six months.
The stock market is expected to remain volatile in the near term as the Fed seeks to bring inflation down to the target level of 2% with interest rate hikes. Recession fears are heightening amid the consecutive rate hikes and the banking sector crisis.
Given these factors, it could be wise for investors to buy fundamentally strong dividend-paying stocks DRI and VCTR for retirement.
Darden Restaurants, Inc. (DRI)
DRI owns and operates full-service restaurants in the United States and Canada. It operates under Olive Garden, LongHorn Steakhouse, Cheddar's Scratch Kitchen, and Yard House, among other brands.
In terms of the trailing-12-month EBIT margin, DRI's 11.21% is 43.8% higher than the 7.79% industry average. Its 7.59% trailing-12-month levered FCF margin is 254.7% higher than the 2.14% industry average. Likewise, its 43.86% trailing-12-month Return on Common Equity is 272% higher than the industry average of 11.79%.
Over the last three years, DRI’s dividend payouts have grown at a 22.4% CAGR. Its four-year average dividend yield is 2.61%, and its forward annual dividend of $4.84 per share translates to a 3.19% yield. It is expected to pay a quarterly dividend of $1.21 per share on May 1, 2023.
For the fiscal third quarter that ended February 26, 2023, DRI’s sales increased 13.8% year-over-year to $2.79 billion. The company’s operating income increased 16.3% year-over-year to $349.90 million. Its net earnings increased 16% year-over-year to $286.60 million. Additionally, its EPS came in at $2.34, representing a 21.2% increase from the prior-year quarter.
DRI’s EPS and revenue for the quarter ending May 31, 2023, are expected to increase 11.1% and 6.2% year-over-year to $2.52 and $2.76 billion, respectively. It has a commendable earnings surprise history, surpassing its consensus EPS estimates in three of the trailing four quarters. Over the past nine months, the stock has gained 31% to close the last trading session at $151.74.
DRI’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #9 out of 46 stocks in the B-rated Restaurants industry. Additionally, it has a B grade for Momentum, Sentiment, and Quality. We have also given DRI grades for Growth, Value, and Stability. Get all the DRI ratings here.
Victory Capital Holdings, Inc. (VCTR)
VCTR operates as an asset management company in the United States and internationally. It offers investment advisory, fund administration, fund compliance, fund transfer agent, fund distribution, and other management services.
On March 15, 2023, VCTR announced that its board of directors approved a new common stock repurchase program of up to $100 million through March 31, 2025. The share repurchase will create value for existing shareholders.
In terms of the trailing-12-month EBIT margin, VCTR's 43.33% is 95.6% higher than the 22.16% industry average. Its 27.62% trailing-12-month Return on Common Equity is 148% higher than the 11.13% industry average. Likewise, its 32.02% trailing-12-month levered FCF margin is 74.6% higher than the industry average of 18.34%.
Over the last three years, VCTR’s dividend payouts have grown at a 92.5% CAGR. Its four-year average dividend yield is 1.47%, and its forward annual dividend of $1.28 per share translates to a 4.43% yield. It paid a quarterly dividend of $0.32 per share on March 27, 2023.
VCTR’s income from operations for the fiscal year ended December 31, 2022, increased 6.8% year-over-year to $399.11 million. Its operating margin came in at 46.7%, compared to 42% in the prior-year period. The company’s adjusted net income came in at $293.80 million. Its adjusted EPS came in at $4.58. In addition, its adjusted EBITDA came in at $424.20 million.
VCTR’s EPS for the quarter ending June 30, 2023, is expected to increase marginally year-over-year to $1.11. Its revenue for the quarter ending September 30, 2023, is expected to increase 2.3% year-over-year to $212.03 million.
It has an impressive earnings surprise history, surpassing its consensus EPS estimates in three of the trailing four quarters. Over the past nine months, the stock has gained 21.7% to close the last trading session at $28.88.
VCTR’s POWR Ratings reflect solid prospects. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
It is ranked #2 out of 53 stocks in the Asset Management industry. The stock has an A grade for Momentum and a B for Stability and Quality. Click here to see the additional ratings of VCTR for Growth, Value, and Sentiment.
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DRI shares were trading at $152.61 per share on Thursday morning, up $0.87 (+0.57%). Year-to-date, DRI has gained 12.13%, versus a 7.90% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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