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.

Automatic Data Processing (ADP)

Automatic Data Processing is one of the largest business services outsourcing companies in the world. The company provides payroll services, human resources technology, and other business operations to more than 700,000 corporate customers. Automatic Data Processing generates annual revenue of about $19 billion. 

With 49 years of consecutive dividend increases, it is also a member of the prestigious Dividend Aristocrats Index, and just one year away from being a Dividend King. 

ADP posted third quarter earnings on May 1st, 2024, and results were quite strong once again. The company posted adjusted earnings-per-share of $2.88, which was a dime better than expected. Revenue was up 7% year-over-year to $5.3 billion, which was $70 million ahead of estimates. 

Employer Services revenue was $3.59 billion, which was up 8% year-on-year, while the segment’s earnings rose 4% to $1.42 billion. Margin improved from 37.3% of revenue to 39.6%. PEO Services revenue was up 5% to $1.67 billion, while earnings fell 10% to $236 million. Margin declined from 16.4% of revenue to 14.2%. 

Consolidated adjusted earnings before interest and taxes was $1.54 billion, up 12% year-over-year. As a percentage of revenue, it rose from 27.8% to 29.3%. ADP expects client funds interest revenue to be about $1 billion, up ~$15 million from prior guidance. This is money ADP earns by investing client funds, so it’s extremely high margin revenue.

Automatic Data Processing has compounded its adjusted earnings-per-share at a rate of more than 11% per year over the last decade, which we believe it can come close to matching moving forward given that its recent earnings growth had been accelerating meaningfully prior to COVID-19. Beyond 2023, we believe the company is capable of delivering 9% annualized growth in earnings-per-share over full economic cycles. 

Much of this growth is likely to be driven by the company’s Professional Employer Organization (PEO) Services segment, which continues to deliver very impressive revenue growth. 

Importantly, this revenue growth has been accompanied by meaningful margin expansion, which means that the segment’s growth has had an outsized impact on the firm’s bottom line. In addition, the company’s buyback has been a low single-digit tailwind annually for earnings-per-share growth in the past decade, and we expect that will continue moving forward.

Valero Energy (VLO)

Valero Energy is the largest petroleum refiner in the U.S. It owns 15 refineries in the U.S., Canada and the U.K. and has a total capacity of about 3.2 million barrels/day. It also produces renewable diesel and has a midstream segment, Valero Energy Partners LP, but its contribution to total earnings is under 10%. 

Valero should be viewed as a nearly pure refiner. In late April, Valero reported (4/25/24) its financial results for the first quarter of fiscal 2024. The global market of refined products has become tight due to the sanctions of western countries on Russia. In the first quarter, refining margins moderated off blowout levels in the prior year’s quarter but remained above average.

Adjusted earnings-per-share decreased -54% over the prior year’s quarter, from $8.27 to $3.82, but exceeded the analysts’ consensus by $0.60. Valero has not missed the analysts’ estimates for 23 consecutive quarters. The company stated that it expects to begin producing sustainable aviation fuel (SAF) in Q4-2024, ahead of schedule. Refining margins have remained elevated for longer than expected thanks to strong demand for oil products.

Valero has a competitive advantage over its peers, namely the high complexity of its refineries, which enables the company to benefit from the gyrations of oil prices and refined products by optimizing its blend of feedstock and products.

VLO stock has a 2.9% current dividend yield, plus buys back stock at a 11% yield. Total shareholder yield for VLO stock is over 13%.

ConAgra Brands (CAG)

Conagra is a major food producer that has well-known brands like Slim Jim, Healthy Choice, Marie Callender’s, Orville Redenbacher’s, Reddi Whip, Birds Eye, Vlasic, Hunt’s, and PAM. On January 25th, 2021, Conagra sold its Peter Pan peanut butter business to Post Holdings. 

On April 4th, 2024, Conagra reported third quarter FY 2024 results for the period ending February 25th, 2023. (Conagra’s fiscal year ends the last Sunday in May). For the quarter, net sales declined 1.7% year-over-year to $3.0 billion, the result of a -0.2% negative impact due to price/mix, and a 1.8% decline in volume. 

Adjusted EPS decreased 9.2% to $0.69. Conagra reaffirmed it expects 1% to 2% organic sales decrease and adjusted earnings-per-share between $2.60 and $2.65 for 2024.

CAG returns significant cash to shareholders. After paying the same $0.2125 quarterly payout for 13 consecutive quarters, Conagra increased its dividend 29.4% in 2020, 13.6% in 2021, 5.6% in 2022, and 6.1% in 2023 to $0.35 per quarter.

From 2019 to 2022, Conagra saw a terrific boon to its results due to the COVID-19 pandemic, with adjusted EPS jumping 13% in fiscal 2020 and 16% in fiscal 2021. Further, the dividend was increased significantly to reflect these results. While results were down in fiscal 2022, they surpassed their previous peak in FY 2023.

CAG stock has a high dividend yield of 4.8%.