How McCormick Keeps Spicing Up Its Dividends

Investors have always been interested in stocks that pay dividends, but lately, low interest rates on bonds and other fixed-income investments have made solid dividend payers even more valuable. Among the most promising dividend stocks in the market is McCormick (NYSE: MKC  ) , and one big reason is that it is one of the few exclusive companies to make the list of Dividend Aristocrats. In order to become a member of this elite group, a company must have raised its dividend payouts to shareholders every single year for at least a quarter-century. Only a few dozen stocks manage to make the cut, and those that do tend to stay there for a long time.

As the king of the spice industry, McCormick provides its well-known products both to consumers through grocery-retail channels and to the food business through its institutional sales. Both segments have been extremely lucrative for McCormick over the years, but will changing trends endanger the company's core business? Let's take a closer look at McCormick to see whether it can sustain its long streak of rewarding dividend payouts to investors.

Dividend stats on McCormick

 

 

Current Quarterly Dividend Per Share

$0.34

Current Yield

1.9%

Number of Consecutive Years With Dividend Increases

27 years

Payout Ratio

42%

Last Increase

December 2012

Source: Yahoo! Finance. Last increase refers to ex-dividend date.

What's been up with McCormick lately?
There's no doubt that McCormick has the corner on the spice market. Institutional food producers rely on the spice giant for innovative flavoring that distinguishes their brands from their competitors' offerings. In particular, PepsiCo (NYSE: PEP  ) and its Frito Lay snack division maintain a close relationship with McCormick, with PepsiCo representing more than 10% of McCormick's total sales in 2012.

But the consumer side of the business is much more profitable, and there, McCormick has faced more competitive issues. The rise of private-label brands has taken the retail food industry by storm, with ConAgra's (NYSE: CAG  ) purchase of Ralcorp Holdings giving the food company a big edge in private-label area and showing its margin-boosting value. For McCormick, however, its success in helping customers build their own store brand spices arguably comes at its own expense, although retaining customers in some capacity is obviously better than losing them entirely.

MKC Dividend Chart

Source: McCormick Dividend data by YCharts.

McCormick has successfully sustained sizable dividend increases over the years, with its most recent boost having come just a few months ago, when the company raised its payout by $0.03 per share to its current level of $0.34 quarterly. Given its fairly low payout ratio, McCormick investors should be more worried about its earnings multiple in the low 20s than with its capacity to keep making dividend payouts in the future.

When will McCormick's dividends rise again?
McCormick typically raises its dividends at the end of each year, so just having given investors a raise recently, the spice company is unlikely to do so again this year. But keeping its dividend increases in the 10% range over the past couple of years bodes well for dividend investors' future prospects in holding McCormick's stock.

PepsiCo relies on McCormick for its snack-food flavorings, but lately, PepsiCo has left shareholders craving more. With increased competition and loss of market share, many investors wonder if this global snack food and beverage giant is simply fizzling out. Are more bland results ahead for PepsiCo? The Motley Fool's new premium report on the company guides you through everything you need to know about PepsiCo, including the key opportunities and threats facing the company's future. Simply click here now to claim your copy today.

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