Top-3 High-Return Stocks for Dividend Investors

Return on invested capital, commonly known as ROIC, is the ratio of the after-tax operating profit of a company to the sum of its cost of debt and equity capital. ROIC is useful when compared to the weighted average cost of capital (WACC) of the company.

The wider the difference between ROIC and WACC, the more efficient the company is in its allocation of capital.

As high-ROIC stocks allocate the capital of their shareholders in a highly-profitable way, they are among the highest-quality stocks in the investing universe. In this article, we will discuss the prospects of three high-ROIC stocks, that also pay dividends.

1. Yum Brands (YUM)

Yum Brands YUM owns the KFC, Pizza Hut, Taco Bell and Habit Restaurants chains. It is present in more than 155 countries and has more than 60,000 restaurants, 60% of which are located abroad. KFC generates about half of the total revenue and operating profit of the company. Yum Brands has a market capitalization of $36.6 billion.

Yum Brands completed its major transformation to accelerate re-franchising and streamline its geographic footprint. It spun-off its Chinese segment and re-franchised its stores at a fast pace, from 77% in 2016 to 98%. Yum Brands used proceeds from the sale of its stores to franchisees to buy back shares aggressively. In addition, thanks to the re-franchising, the company has become more efficient, with much lower operating expenses and a wider operating margin.

In early February, Yum Brands reported (2/6/25) results for Q4-2024. It grew its sales 8% over the prior year’s quarter thanks to 14% growth at Taco Bell, 6% growth at KFC and 3% growth at Pizza Hut. Store count grew 5%. Digital sales were over $9 billion and exceeded 50% of total sales. Earnings-per-share grew 28%, from $1.26 to $1.61, and exceeded the analysts’ consensus by $0.01.

Yum Brands keeps opening new stores at a fast pace. Management provided guidance for 8% growth of operating income in 2025. Accordingly, we expect earnings-per-share of $5.92 this year.

Yum Brands has returned to strong growth mode thanks to the growth of its store count and its same-store sales. The company expects to grow its store count by 4% to 5% per year in the upcoming years. Before the spin-off of its Chinese segment, Yum Brands grew its earnings-per-share at a 7.6% average annual rate. During the last five years, Yum Brands has grown its earnings-per-share at a 9.1% average annual rate.

Thanks to its established brands, the company enjoys reliable free cash flows, which allows for a strong dividend growth potential. YUM currently yields 1.9%.

2. TJX Companies (TJX)

TJX Companies TJX is a leading off-price retailer of apparel and home fashions in the U.S. and worldwide. As of November 2, 2024, the company operated 5,057 stores in nine countries. These include 1,331 T.J. Maxx (26% of total), 1,219 Marshalls (24%) and 941 HomeGoods (19%) in the United States. TJX also operates e-commerce sites. In a normal year, the company generates about $50 billion in annual revenue and about $4 billion in net profit.

Throughout TJX’s 40-plus year history, it has experienced a decline in its same-store sales in only two years, including in fiscal 2021 in which it had huge setbacks because of economic lockdowns during the global COVID-19 pandemic. This degree of consistency is exceptional and proves the strength of the business model of the company and its execution.

We expect TJX to remain more resilient than most other retailers against Amazon.com AMZN and other e-commerce threats. This is because TJX offers great discounts on an attractive selection of merchandise while it also cultivates a “treasure-hunting” experience, which cannot be imitated by e-commerce giants.

In November 2024, TJX released its fiscal Q3 2025 results for the period ending on November 2, 2024. For the quarter, net sales climbed 6% year over year to $14.1 billion. Consolidated comparable store sales rose 3%, driven entirely by an increase in customer transactions. It witnessed comparable store sales growth across all its divisions with the strongest of 7% at TJX International (Europe and Australia), 3% at HomeGoods (U.S.), and 2% at both Marmaxx (U.S.) and TJX Canada.

We expect TJX’s long-term outlook to remain solid, as the company has demonstrated good results through the economic cycle. It ended FY Q3 25 with cash and cash equivalents of $4.7 billion, and it is awarded an S&P credit rating of "A." The company also restored and began increasing its dividend since December 2020. We expect TJX to continue increasing its dividend in the foreseeable future based on expected growing EPS and a sustainable payout ratio.

3. Starbucks Corporation (SBUX)

Starbucks SBUX began with a single store in Seattle’s Pike Place Market in 1971 and now has more than 39,000 stores worldwide. Nearly half of the stores are in the U.S. and nearly 20% of the stores are in China. The company operates under the namesake Starbucks brand, but also holds the Teavana, Evolution Fresh and Ethos Water brands in its portfolio. The company generated $36 billion in annual revenue in fiscal 2024.

In late January, Starbucks reported financial results for the first quarter of fiscal year 2025 (Starbucks’ fiscal year ends the Sunday closest to September 30). Comparable store sales declined -4% due to a -4% decline in North America and a -4% decline in international markets. Same-store sales in China fell -6%.

Adjusted earnings-per-share decreased -23%, from $0.90 in the prior year’s quarter to $0.69, but exceeded the analysts’ consensus by $0.02. It was a decent earnings report, as sales and earnings decreased less than they did in the two preceding quarters, signaling the beginning of a turnaround. Due to the recent change in the CEO position, the new management did not provide any guidance for fiscal 2025.

Starbucks had put together an excellent operating record, growing earnings-per-share by 18% per annum in the 2010 to 2019 period. During that period, its net profit margin expanded from 5% to 13%, while the company-owned store count nearly doubled. 

Looking further out, Starbucks has a strong growth trajectory available over the long-term thanks to a growing U.S. and international store count, where the company is still in the early innings of expansion, coupled with pricing power.

Starbucks sells a popular product combined with a well-respected brand. This allows the company to sell its coffee at premium prices and generate repeat business from customers. Still, the company is somewhat cyclical.

Starbucks is currently offering a dividend yield of 2.2%. Thanks to its decent payout ratio of 66%, its solid balance sheet and its promising growth prospects, the company is likely to keep raising its dividend meaningfully for many more years.

At the time of publication, Ciura had no positions in any securities mentioned.