Dividend Stocks

To us, the definition of blue-chip stocks are those that have raised dividends for at least 10 years in a row, and currently have safe dividend payouts. These dividend stocks endured recessions and difficult operating environments and were still able to increase payments to shareholders.

Most dividend growth investors are familiar with the usual suspects such as Johnson & Johnson (NYSE:JNJ) and Walmart (NYSE:WMT) .

There are many stocks, however, that don’t get discussed much in financial media that have lengthy dividend growth track records and also have the potential to provide sizeable total returns.

This article will discuss three stocks we feel investors likely don’t know much about, but should, including:

  • BancFirst Corp. (NASDAQ:BANF)
  • Royal Gold Inc. (NASDAQ:RGLD)
  • The Scotts Miracle-Gro Company (NYSE:SMG)

Dividend Stocks: BancFirst (BANF)

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BancFirst Corp. is a holding company for BancFirst. The company provides commercial banking services through its more than 100 banking locations spread out over 50 communities in Oklahoma. BancFirst services include checking, savings, IRAs, CDs and money market accounts. The company also originates commercial, home, consumer and agricultural loans. BancFirst is valued at $1.8 billion and generated revenue of $444 million in 2020.

As a small regional bank operating in a single state, BancFirst lacks real competitive advantages from other institutions. However, the company appears to be very well run. Dating back a quarter-century, shares of BancFirst has outperformed not only the major national banks, but also the S&P 500 index as a whole. This is an incredible performance for what is a small-cap stock.

The company has managed this growth due to its ability to generate a high rate of earnings growth relative to its size. Since 2011, earnings-per-share had a compound annual growth rate of 7.4%. We are estimating a slightly more conservative forecast going forward as we believe earnings-per-share will grow at a rate of 6% annually through 2026.

BancFirst has raised its dividend for 28 consecutive years. Over the last decade, the dividend has increased with a CAGR of nearly 10%. Shares currently yield 2.6%.

The stock trades hands around $55 at the moment. Our expectations are that BancFirst will 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 below 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 year for the next half-decade for shares of BancFirst. We believe that BancFirst is one of the best regional banks you have never heard of for total returns. We rate shares of this dividend stock  as a buy.

Royal Gold (RGLD)

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Royal Gold acquires and manages precious metal royalty interests and metal streams. The company owns stream interests in six producing properties and two development stage properties. Royal Gold also owns royalty interests in 35 producing mines, 14 development stage mines and 130 exploration stage mines.

The company is valued at $7.2 billion and had revenue of $616 million in fiscal year 2021, which ended June 30.

Royal Gold has a very efficient business model that allows the company to limit its exposure to operating and capital cost risks. Its streaming contracts stipulate that the company has the right to purchase all or a portion of metals produced from a mine at a price determined for the life of the transaction. This helps protect Royal Gold in case of a precious metal market decline, but also provides the upside of an increase in prices.

The company also uses bolt-on acquisitions to help spur future growth as well, such as the company’s purchase of NX Gold Mine this August. With a strong business model, we forecast that Royal Gold will be able to grow earnings-per-share by 5.5% annually over the next five years.

Royal Gold yields just 1.1% at the moment, but the dividend has doubled over the last decade. The company has also raised its dividend for 20 consecutive years, an impressive feat for a company that is in very cyclical industry such as precious metals.

With a current share price of $106 and our expected earnings-per-share of $4.18, Royal Gold has a price-to-earnings ratio of 25.4. This is well-below the stock’s average price-to-earnings ratio of 54.9 since 2011. We estimate fair value to be 35 times earnings, which is lower than the long-term average, but still above what the stock is currently valued at. Multiple expansion could contribute 6.6% to annual returns through 2026.

Combining earnings growth, starting dividend yield and possible multiple expansion nets Royal Gold a projected total return of 13.2%. While the precious-metal industry can be extremely volatile, Royal Gold has created a very successful business model that protects against many declines in prices. For investors looking to enter this area of the economy, we recommend they consider Royal Gold as a dividend stock.

Dividend Stocks: Scotts Miracle-Gro (SMG)

Source: Casimiro PT / Shutterstock.com

Scotts Miracle-Gro is a leading provider of lawn and garden products. The bulk of the company’s revenues and profits come from its U.S. consumer business, which is led by such brands as Scotts, Turf Builder and Miracle-Gro. Scotts Miracle-Gro has a market capitalization of $8.1 billion and produces annual revenues of more than $4 billion.

As a leader in its industry, Scotts Miracle-Gro has been able to capitalize on new and existing trends in the area of lawn and garden. One such area is the expanding cannabis industry, which needs the company’s products in large amount in order to fuel growth.

Scotts Miracle-Gro has also been highly successful at integrating acquisitions and unlocking value. The company’s purchase of Sunlight Supply, which is the largest distributor of hydroponic products in the country, is a prime example of this. The acquisition enabled Scotts Miracle-Gro to greatly reduce costs through synergies while also expanding its footprint in this area.

Even though the pandemic weighed on results last year, Scotts Miracle-Gro has still experienced earnings growth of more 10% annually over the last decade. We are forecasting a slightly lower growth rate of 7% per year for the next five years.

As a dividend stock, Scotts Miracle-Gro offers a yield of 1.8% with a dividend CAGR of 8.4% for the last 10 years. The company has a dividend-growth streak numbering 12 years in length.

The stock is priced around $143. We project that Scotts Miracle-Gro will earn $9.15 per share this year, giving the stock a price-to-earnings ratio of 15.6. Historically, shares have traded hands with a multiple in the mid-20s range. We have a five-year target valuation of 23 times earnings. Multiple expansion could be an 8.1% tailwind to total returns over this period of time.

In total, we believe that Scotts Miracle-Gro could provide total returns of 17.2% per year for the next five years. The company has a solid expected earnings growth rate combined with shares trading at a steep discount to our valuation target. Investor could be looking at a high double-digit total return from Scotts Miracle-Gro.

On the date of publication, Bob Ciura did not have (either directly or indirectly) positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Bob Ciura has worked at Sure 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 bachelor’s degree in Finance from DePaul University and an MBA with a concentration in investments from the University of Notre Dame.

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