Return on invested capital, or ROIC, is a popular valuation tool favored by many of the world’s top investors such as Warren Buffett.

ROIC measures a company’s effectiveness in deploying the debt and equity capital that it has received from investors. ROIC is calculated by dividing a company’s after-tax net operating profit, by the sum of its debt and equity capital.

Stocks with a high ROIC have demonstrated a stronger ability to turn invested capital into profits for shareholders.

This article will discuss 3 of our top high ROIC stocks right now.

Darden Restaurants (DRI)

Darden Restaurants Inc. is a restaurant operator with a portfolio of brands including Olive Garden, LongHorn Steakhouse, Cheddar's Scratch Kitchen, Yard House, The Capital Grille, Seasons 52, Bahama Breeze, and Eddie V's. The company employs 165,000 team members, and as of the fiscal year ending May 31, 2022, it owns and operates over 1,800 restaurants in the United States and Canada, and 71 franchisees restaurants.

On December 15th, 2023, Darden Restaurants Inc. reported the second quarter results for Fiscal Year (FY)2024. The company saw a 9.7% increase in total sales to $2.7 billion. The growth was fueled by a 2.8% rise in same-restaurant sales and the addition of Ruth's Chris Steak House restaurants. Adjusted diluted net earnings per share increased by 21.1% year-over-year. Segment-wise analysis showcased robust performance across Olive Garden, LongHorn Steakhouse, Fine Dining, and Other Business.

DRI returns to shareholders. Recently the company has been very aggressive in increasing its dividend. Last fiscal quarter, Darden declared a quarterly cash dividend of $1.31 per share and repurchased approximately 1.2 million shares for $181 million.

Looking ahead, Darden updated its fiscal 2024 financial outlook, projecting total sales of around $11.5 billion, along with same-restaurant sales growth of 2.5% to 3.0%. DRI has a current dividend yield of 3.1%.

KLA Corporation (KLAC)

KLAC stock has risen almost 80% in the past 12 months. KLA Corporation is a supplier to the semiconductor industry. The company supplies process control and yield management systems for semiconductor producers such as TSMC, Samsung and Micron. KLA was created in 1997, through a merger between KLA Instruments and Tencor Instruments, and has grown through a range of acquisitions since then.

KLA Corporation reported its second quarter (fiscal 2024) earnings results on January 25. The company reported revenues of $2.49 billion for the quarter, which represents a decline of 16% compared to the prior year’s quarter. This revenue decline was still stronger than what the analyst community had expected, as KLA’s top line beat the analyst consensus by $30 million.

KLA generated earnings-per-share of $6.16 during its fiscal second quarter, which beat estimates by $0.28, and which was down by 17% compared to the previous year’s quarter. During the previous quarter, earnings-per-share had declined as well. KLA is guiding for revenues of $2.3 billion for the current quarter and sees earnings-per-share of $5.25.

The company has increased its dividend for 14 consecutive years. With a 2024 estimated payout ratio of 25% the dividend payout is very secure with room for continued increases, although the current yield is low at 0.8% due to the massive rise in share price in recent years.

Starbucks Corporation (SBUX)

Starbucks began with a single store in Seattle’s Pike Place Market in 1971 and now has more than 37,000 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 2023.

In late January, Starbucks reported (1/30/24) financial results for the first quarter of fiscal year 2024 (Starbucks fiscal year ends the Sunday closest to September 30th). The company maintained its strong business momentum and grew its comparable store sales more than 5% thanks to 5% growth in North America and 7% growth in international markets. Same-store sales in China grew 10%.

Adjusted earnings-per-share grew 20%, from $0.75 in the prior year’s quarter to $0.90, but missed the analysts’ consensus by $0.04. The headwinds from the lockdowns in China and high inflation have subsided. Starbucks reaffirmed its full-year guidance for 15%-20% growth of earnings-per-share, in line with its long-term guidance.

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 has increased its dividend for 14 consecutive years and now has a current dividend yield of 2.4%. Thanks to its healthy payout ratio of 55%, its solid balance sheet and its promising growth prospects, the company is likely to keep raising its dividend for many more years.

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Bob Ciura has worked at Sure Dividend since October 2016. He oversees all content for Sure Dividend and its partner sites. 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.