McDonald’s Corporation (NYSE:MCD) has increased dividends for 36 consecutive years. The company boasts a dividend yield of 3.0%, payout ratio of 53% of the current-year EPS estimate, and five-year annualized dividend growth of 14.3%. McDonald’s Corporation (NYSE:MCD)’s operates in some 119 countries and has a growing foothold in emerging markets. In the United States, the company has reported same-store sales growth each year over the past decade, while in Europe, its single largest market by sales, same-store sales have risen each of the past nine years. The company targets system wide sales CAGR of 3%-to-5%, operating income CAGR of 6%-to-7%, and return on incremental invested capital [ROIIC] in the high teens.
Last year, McDonald’s Corporation (NYSE:MCD) missed only its target on operating income, the first time in the past ten years. The company will continue to focus on expanding market share, particularly in emerging markets. In line with this objective, it plans to open up to 1,600 new restaurants worldwide in 2013, including 300 in China. The company is also increasing shareholder value through stock buybacks, holding $10 billion available for share repurchases without a specific expiration date.
While its valuation has increased, with a forward P/E of 17.6x, McDonald’s Corporation (NYSE:MCD) is still trading below the forward multiple of its industry. Last quarter, the Bill & Melinda Gates Foundation Trust reported owning almost 9.9 million McDonald’s Corporation (NYSE:MCD) shares (the Trust’s largest positions are listed here).
Target Corporation (NYSE:TGT) has raised dividends for 45 consecutive years. It pays a dividend yield of 2.1% on a payout ratio of 31% of its current-year EPS estimate. The company’s dividends have grown at a CAGR of 21.2% over the past five years. The company owes its historically enviable performance to strong consumer spending in the United States. Now, Target is pursuing an international expansion focused on Canada, where the company plans to open 200 new stores in the next 5-10 years. (Recent anecdotal evidence suggests that sales are robust at a few newly-opened stores in Canada.)
The company’s growth plan is expected to help boost the company’s sales to $100 billion and EPS to $8.00 by 2017. Last year, Target Corporation (NYSE:TGT)’s full-year adjusted EPS rose 7.9% to $4.76. Analysts forecast the company’s EPS CAGR at 11.9% for the next five years. This is the same annualized rate of growth that will take Target’s current dividend to its 2017 target of $3.00 per share. That targeted rate of dividend increases looks generous. In terms of valuation, the stock is trading at 15.1x forward earnings, a slight premium to its peers.
Last quarter, hedge funder John A. Levin (Levin Capital Strategies) trimmed his share ownership in Target Corporation (NYSE:TGT) by 28%, but still maintained a position worth nearly $100 million.
The Procter & Gamble Company (NYSE:PG) has increased dividends for 56 years in a row. It has a dividend yield of 2.9%, payout ratio of 56% of the current-year EPS estimate, and five-year annualized dividend growth of 9.3%. P&G estimates its high-side long-term EPS potential CAGR at between 12% and 17%. The company enjoys leading positions in many international markets, with strong and diversified portfolio of brands, increasing presence in emerging markets, and robust product innovation through new offerings and packaging. The company saw subpar growth in fiscal 2012, which prompted its management to embark on the mission to boost top- and bottom-line growth, with targeted expansion in emerging markets and productivity and cost cutting initiatives.
Cost reduction initiatives are expected to produce savings of $10 billion by 2016, through reductions in cost of goods sold, marketing, and non-manufacturing overhead costs. This year, The Procter & Gamble Company (NYSE:PG) expects to realize organic sales growth of 3%-to-4%, excluding any foreign exchange effects, and core EPS growth of 2%-to-5%. For the next five years, analysts forecast an EPS CAGR of 7.8%. In terms of valuation, the stock is trading on par with its peers at 18.7x forward earnings. In the previous quarter, legendary value investor, Warren Buffett, reported holding almost $3.6 billion in this stock.
Wal-Mart Stores, Inc. (NYSE:WMT) has increased dividends for 38 consecutive years. It has a dividend yield of 2.5%, payout ratio of 35% of the current-year EPS estimate, and five-year annualized dividend growth of 13.2%. Wal-Mart is the world’s largest company by revenues. Its revenues have risen every year since 1998, and totaled $469 billion last year alone.
Over the past decade, Wal-Mart has achieved a sales CAGR of 7.3% and an EPS CAGR of 11.1%. The company projects its FY2014 EPS to $5.20-to-$5.40, implying growth between 3.6% and 7.6% from the year earlier. Analysts forecast the company’s EPS CAGR at 9% for the next five years. The company has wide economic moat, strong branding power, increasing market shares in key emerging markets, and strong cash flow generation that allows for sustained dividend growth.
Wal-Mart Stores, Inc. (NYSE:WMT) as a stock also has a low beta of 0.41, implying low volatility of this stock’s returns relative to those of the broader market. While the stock is priced almost on par with its respective industry, with a forward P/E of 14.5x, it trades at a price-to-sales of only 0.6. In terms of hedge fund interest in WMT, based on the last available 13-F disclosures, Warren Buffet’s Berkshire Hathaway and the Bill & Melinda Gates Foundation Trust are the two largest fund owners of Wal-Mart Stores, Inc. (NYSE:WMT).
Exxon Mobil Corporation (NYSE:XOM) has raised dividends for 30 consecutive years. It pays a dividend yield of 2.6% on a payout ratio of 28% of its current-year EPS estimate. The company’s dividends grew at a CAGR of 8.6% over the past five years. The company is the world’s second-largest dividend payer, with a total annual payout of nearly $10.1 billion.
As the largest integrated oil and natural gas company, Exxon Mobil enjoys large economies of scale and scope. Its outlook is optimistic as the U.S. walks towards its energy independence and the title of the world’s largest energy producer. With a strong portfolio of shale assets, such as those in the Bakken Shale, and one of the largest exposures to natural gas through its XTO Energy subsidiary, Exxon Mobil Corporation (NYSE:XOM) is well positioned to benefit from the boom in energy production.
The company is highly profitable, generates strong cash flows and has very little long-term debt on its balance sheet. It is also attractively valued, as it boasts a price-to-book of 2.4, below its five-year average, and trades at a forward P/E of 11.1x, at an 18% premium to its industry, capitalizing from its large size and solid credit rating. The Bill & Melinda Gates Foundation Trust reported owning more than 7.6 million Exxon Mobil Corporation (NYSE:XOM) shares at the end of the fourth quarter.
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