Casey’s General Stores (NASDAQ: CASY) is an attractive stock for dividend-growth portfolios because it has everything a dividend-growth investor can want, and it’s reflected in share price action. The qualities that stand out most are the fortress balance sheet, self-funded growth, cash-flow strength, and robust capital return, including dividends and share repurchases. The company did not repurchase shares in FQ1, but there is a reason investors will like it.

Casey’s has agreed to buy 198 stores and the infrastructure to support them. The deal is for Fikes Wholesale, based in Texas, a key market for Casey’s growth strategy. It is all-cash, expected to close this year, and will be immediately accretive to shareholders. Management declined to adjust guidance until after the close but did raise its outlook for store count, which is an acceleration from prior guidance. 

As it is, the retail company expects low-to-mid single-digit top-line growth and a modestly wider margin than in the previous year. However, the final results will be more significant, leading to an acceleration next year, because the 270 new stores projected for F2024 are greater than 10% growth, and more stores will likely be added. This company is focused on growing its business, and acquisition is a primary avenue. 

Casey’s Mixed Results Are No Cause for Concern

Casey had mixed results for Q1, but no cause for concern exists. Revenue of $4.1 billion missed the consensus forecast reported by MarketBeat but by a slim 120 basis points, offset by 5.9% YoY and a wider margin. Sales were driven by strength in both segments, with Inside Sales leading with 2.3% top-line growth and gallons sold growing at a slower 0.7%. Inside sales are up 7.9% in the two-year stack, driven by a consumer shift to value, which Casey’s provides. 

The company reports strength in prepared foods and beverages and plans to continue capitalizing on the trend. Total gallons sold is another strength, boosted by the increased store count. The store count grew by a small figure in Q1 but is up by 138 or about 5.5% for the year.

Margin and earnings are critical details for income investors. The company widened its system-wide margin despite a decline in fuel gallon margin, which remains strong. The fuel gallon margin exceeded the target of $0.40, while the inside margin improved by 110 basis points, and fees and SG&A declined. The net result is an 8.8% increase in EBITDA and a 6.8% gain in GAAP earnings. GAAP earnings are better than forecast and are expected to remain strong for the foreseeable future. 

Casey’s Capital Return: A Safe Dividend with Upside Potential

Casey’s dividend isn’t large in relation to the share price, yielding about 0.5% with shares near $350, but it is safe and reliable, and the distribution can be expected to increase. The company has increased it for 24 consecutive years and can continue for another 24 because of the low 13% payout ratio, earnings outlook, and balance sheet.

The balance sheet will take a hit with the closing of Fikes, but it can handle it. Cash is up 50% YoY, and leverage is ultra-low. Total liabilities are about 1x equity, with long-term debt at 0.5x equity and 0.2x assets. 

Ten analysts tracked by MarketBeat rate this stock at a consensus of Moderate Buy and show a high conviction in the $399 price target. This implies a 12% upside for the stock, and the revision trend is leading to the high-end range. The high-end range tops out at $445, another 10% higher, and an attractive gain is expected within the next 12 months.

A move to consensus aligns the market with all-time highs; a move above it is a new all-time high, a likely precursor to another sustained upward movement in share prices with a technical target of $450.