Dividends are the most common method that a company can use to return capital to shareholders. However, there are additional ways for companies to create value for shareholders. In addition to dividends, share repurchases are also an important part of a healthy capital return program. Also, debt reduction should be welcomed by investors as paying down debt creates value for shareholders.Stocks with the highest shareholder yields could generate superior long-term returns.The following 3 stocks not only pay dividends to shareholders, but also generate enough cash flow to buy back stock and reduce their debt. Estee Lauder Companies (EL)Estee Lauder is one of the world’s largest cosmetics and beauty care companies. It competes primarily in the upscale and prestige portion of the market. Sales break down as follows: Skin care makes up 52% of sales, makeup constitutes 28%, fragrance is another 16%, and hair care is the other 4%.The firm’s leading brands include the namesake Estee Lauder along with Clinique, Aveda, M.A.C., and Origins among others. Estee Lauder is a truly international firm, operating in more than 150 countries. And revenues are split almost equally in thirds between the Asia-Pacific, Europe Middle East & Africa, and the Americas segments. Estee Lauder enjoyed a tremendous growth surge as the economy reopened from the pandemic. The company relies on travel retail and gifting as significant sources of demand, so the reopening of airports, malls, and other such commercial centers greatly boosted the company’s results. However, retailers bought too much cosmetics inventory and certain markets – particularly Asia – greatly decelerated over the past two years.The company reported its Q4 and full-year 2024 results on August 19th, 2024. Earnings-per-share of 64 cents declined from $1.08 for the same period of last year, but topped expectations. Revenues of $3.9 billion increased 7% year-over year, marking a healthy reversal from the company’s recent sales declines. Management has guided to much more favorable results for 2025 as revenues rebound and profit margins recover.Estee Lauder has averaged a roughly 50% payout ratio over the past decade (excluding 2024). It remains around there, based on normalized earnings, and we expect the payout ratio to remain around that level long-term. The company has a strong balance sheet, earning an “A” credit rating from S&P Global and it holds minimal net debt. The balance sheet gives Estee Lauder room to keep paying the dividend during this current earnings slump. Baxter International (BAX)Baxter International develops and sells a variety of healthcare products, including biological products, medical devices, and connected care services devices used to monitor patients. Its products are used in hospitals, kidney dialysis centers, nursing homes, doctors’ offices, and patients at home under physician supervision.On August 6th, 2024, Baxter International reported second quarter earnings results for the period ending June 30th, 2024. For the quarter, revenue grew 2.8% to $3.81 billion, which was $60 million above estimates. Adjusted earnings-per share of $0.68 compared favorably to $0.55 in the prior year and was $0.02 better than expected.Starting with Q3 2023, the company now has four reportable business segments. All of the businesses within the company showed year-over-year growth on a constant currency basis. Excluding the impact of currency exchange, Kidney Care revenue was higher by 3% to $1.1 billion.Even after Baxter International issued long-term debt to finance the $12.5 billion Hillrom acquisition, we still believe the company has conservative debt ratios, especially as it plans to deleverage over the intermediate term. The company’s low projected payout ratio of ~40% makes us believe that the dividend is safe and will continue to grow alongside the 10% projected earnings-per-share growth. Alphabet (GOOG)(GOOGL)Alphabet is a holding company. With a market capitalization that exceeds $2 trillion, Alphabet is a technology conglomerate that operates several businesses such as Google search, Android, Chrome, YouTube, Nest, Gmail, Maps, and many more. Alphabet is a leader in many of the areas of technology that it operates.Alphabet has a market cap above $2 trillion, making it a mega-cap stock.There are two classes of Alphabet stock, Class A shares, which has voting rights, and Class C shares, that do not have voting rights. This report will reference the Class A shares. On July 23rd, 2024, Alphabet declared its second ever quarterly dividend of $0.20 per share.Also on July 23rd, 2024, Alphabet announced second quarter results for the period ending June 30th, 2024. As had been the case for several quarters, the company delivered better than expected results.Revenue improved 13.6% to $84.7 billion for the period, topping analysts’ estimates by $450 million. Adjusted earnings-per-share of $1.89 compared very favorably to $1.44 in the prior year and was $0.04 more than expected.The company ended the most recent quarter with $110.9 billion of total cash, cash equivalents and marketable securities on its balance sheet. Given a slight slowing in earnings growth over the medium-term and the high base from which earnings-per-share are expected to be for 2024, we project annual EPS growth of 15% through 2029.Alphabet has only begun to declare dividends recently. That said, we project that the company, given the tremendous cash on its balance sheet, will likely be able to provide significant dividend increases moving forward.More By This Author:3 Mega-Cap Stocks For Long-Term Dividend Growth
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