3 valuable dividend-paying stocks to buy for high total returns
For us, the definition of blue chip stocks are those that have increased their dividends for at least 10 consecutive years and currently have safe dividend payouts. These dividend-paying stocks have endured recessions and harsh operating environments and still have been able to increase shareholder payouts.
Most dividend growth investors know the usual suspects such as Johnson & johnson (NYSE:JNJ) and Walmart (NYSE:WMT).
However, there are many stocks that don’t get much talk in the financial media, that have a long track record of dividend growth, and that also have the potential to deliver significant total returns.
This article will cover three stocks that we think investors probably don’t know much about, but should, including:
- BancFirst Corp. (NASDAQ:BANF)
- Or Royal Inc. (NASDAQ:RGLD)
- The Scotts Miracle-Gro Company (NYSE:SMG)
Dividend stocks: BancFirst (BANF)
BancFirst Corp. is a BancFirst holding company. The company provides commercial banking services through its more than 100 branches in 50 communities across Oklahoma. BancFirst services include chequing, savings, IRA, CD and money market accounts. The company also offers commercial, real estate, consumer and agricultural loans. BancFirst is valued at $ 1.8 billion and generated sales of $ 444 million in 2020.
As a small regional bank operating in one state, BancFirst does not have any real competitive advantages over other institutions. However, the business appears to be very well run. Dating back a quarter of a century, BancFirst stocks have outperformed not only the major national banks, but also the S&P 500 index as a whole. This is an incredible performance for a small cap stock.
The company has managed this growth because of its ability to generate a high rate of earnings growth relative to its size. Since 2011, earnings per share have grown at a compound annual growth rate of 7.4%. We estimate a slightly more conservative forecast going forward, as we believe earnings per share will grow at a rate of 6% per year through 2026.
BancFirst has increased its dividend for 28 consecutive years. Over the past decade, the dividend has increased with a CAGR of almost 10%. Stocks are currently returning 2.6%.
The stock is currently trading around $ 55. We expect BancFirst to earn $ 4.55 per share in 2021, giving the stock a price-to-earnings ratio of 12.2. This compares to our target valuation of 15 times earnings, which is slightly lower than the long-term growth rate. Multiple expansion could therefore add 4.2% to annual returns through 2026.
In total, we expect total returns of 12.8% per annum for the next five years for BancFirst shares. We think BancFirst is one of the best regional banks you’ve never heard of in terms of total return. We value the actions of this dividend stock as a buy.
Royal Gold (RGLD)
Royal Gold acquires and manages precious metal royalty interest and metal streams. The company has interests in six producing properties and two properties in the development phase. Royal Gold also holds royalty rights in 35 producing mines, 14 mines in the development phase and 130 mines in the exploration phase.
The company is valued at $ 7.2 billion and had sales of $ 616 million in fiscal 2021, which ended June 30.
Royal Gold has a very efficient business model which allows the company to limit its exposure to operational risks and investment costs. Its streaming contracts stipulate that the company has the right to purchase all or part of the metals produced from a mine at a set price for the duration of the transaction. This helps protect Royal Gold in the event of a downturn in the precious metals market, but also offers the benefit of an increase in prices.
The company is also using targeted acquisitions to drive future growth, such as the company’s purchase of the NX gold mine in August. With a strong business model, we expect Royal Gold will be able to increase earnings per share by 5.5% per year over the next five years.
Royal Gold is only returning 1.1% at the moment, but the dividend has doubled in the last decade. The company has also increased its dividend for 20 consecutive years, an impressive achievement for a company operating in a highly cyclical industry like the precious metals industry.
With a current share price of $ 106 and our expected earnings per share of $ 4.18, Royal Gold has a price-earnings ratio of 25.4. This is well below the average price-to-earnings ratio of 54.9 since 2011. We estimate the fair value at 35 times earnings, which is below the long-term average, but still above the current value of the share. Multiple expansion could contribute 6.6% of annual returns through 2026.
The combination of earnings growth, starting dividend yield and possible multiple expansion allows Royal Gold to achieve a projected total return of 13.2%. While the precious metals industry can be extremely volatile, Royal Gold has created a very successful business model that protects against many price drops. For investors looking to enter this area of the economy, we recommend that they consider Royal Gold as a dividend-paying stock.
Dividend Stock: Scotts Miracle-Gro (SMG)
Scotts Miracle-Gro is a leading supplier of lawn and garden products. The bulk of the company’s revenue and profits come from its consumer operations in the United States, run by brands such as Scotts, Turf Builder, and Miracle-Gro. Scotts Miracle-Gro has a market cap of $ 8.1 billion and generates annual revenues of over $ 4 billion.
As a leader in its industry, Scotts Miracle-Gro has capitalized on new and existing trends in the lawn and garden industry. One of those areas is the growing cannabis industry, which needs the company’s products in large quantities to fuel its growth.
Scotts Miracle-Gro has also been very successful at integrating acquisitions and unlocking value. The company’s purchase of Sunlight Supply, which is the nation’s largest distributor of hydroponics, is a prime example. The acquisition enabled Scotts Miracle-Gro to significantly reduce costs through synergies while expanding its presence in this area.
Even though the pandemic weighed on results last year, Scotts Miracle-Gro has still seen profit growth of more than 10% per year for the past decade. We expect a slightly lower growth rate of 7% per year for the next five years.
As a dividend-paying stock, Scotts Miracle-Gro offers a yield of 1.8% with a dividend CAGR of 8.4% for the past 10 years. The company has a 12-year dividend growth streak.
The share price is around $ 143. We expect Scotts Miracle-Gro to earn $ 9.15 per share this year, giving the stock a price-to-earnings ratio of 15.6. Historically, stocks have traded hands with a multiple in the mid-20s range. We have a five-year target valuation of 23 times earnings. The multiple expansion could represent a tailwind of 8.1% of total returns during this period.
In total, we believe Scotts Miracle-Gro could generate total returns of 17.2% per year over the next five years. The company is showing a strong expected earnings growth rate combined with stocks that are trading at a steep discount to our valuation target. The investor might consider a high double-digit total return from Scotts Miracle-Gro.
As of the publication date, Bob Ciura does not have (directly or indirectly) any position in any of the stocks mentioned in this article. The opinions expressed in this article are those of the author, subject to the InvestorPlace.com Publishing Guidelines.
Bob Ciura worked at Secure dividend since 2016. He oversees all content for Sure Dividend and its partner sites. Prior to joining Sure Dividend, Bob was an independent equity analyst. His articles have been published on major financial websites such as The Motley Fool, Seeking Alpha, Business Insider and more. Bob received a BA in Finance from DePaul University and an MBA with a concentration in Investments from the University of Notre Dame.