Church & Dwight, McCormick, and B & G Foods: 3 Household Investment Ideas For a Choppy Market

Great investment ideas can come from household items.

May 15, 2014 at 2:00PM

Investor great Warren Buffett once said, "All there is to investing is picking good stocks at good times and staying with them as long they remain good companies."

This of course begs the question: What makes a "good company"? The answer is that good companies have solid fundamentals and sell items that people need, making them less prone to obsolescence like what you find in the technology sector. Personal goods company Church & Dwight (NYSE:CHD), spice and condiments seller McCormick (NYSE:MKC), and food conglomerate B&G Foods (NYSE:BGS) represent good examples of these types of companies. However, it always pays to look at company fundamentals such as revenue, cash flow growth, and the ability to retain cash for reinvestment in the business.

Nothing simpler than detergent and toothpaste


Source: Motley Fool Flickr by Michael Carter

Church & Dwight sells a myriad of personal care and household products such as Arm & Hammer detergent, baking soda, and cat litter among other well-known brand names such as: Nair, Orajel, Oxi Clean, and Trojan.  In the most recent quarter, Church & Dwight's revenue grew 0.35% with product volume contributing the most to gains which is what investors wants to see.  However, net income declined 5% with marketing expenses contributing most heavily to the decline . The lack of an estimated federal tax payment stemming from Hurricane Sandy relief and lower capital expenditures served as impetus for a 55% increase in free cash flow.

Looking further at Church & Dwight's balance sheet, cash and long-term debt to equity clocked in at 14% and 31% respectively last quarter.  Investors should look for companies with long-term debt to equity ratios of less than 50%. Debt creates interest costs that choke out profitability and deplete cash flow. Church & Dwight paid out a frugal 44% of its free cash flow in dividends in the most recent quarter. Currently the company pays shareholders $1.24 per share per year translating into an annual yield of 1.8%.

Gravy and spices


Source: Motley Fool Flickr by J.B. Eccard

McCormick sells spices such as pepper, herbs, and condiments like gravy for mashed potatoes. The company caters to the individual consumer as well as the restaurant market.  In the most recent quarter McCormick saw its sales, net income, and free cash flow increase 6%, 9%, and 178%  respectively. Sales increases came from acquisitions, increased prices, and higher volume. Cost savings and improved margins contributed to net income increases.  Lower retirement plan contributions and lower employee incentive expenditures contributed to increases in free cash flow.  Looking at McCormick's balance sheet,cash and long-term debt to equity ratios clocked in at 5% and 51%  respectively last quarter. The company paid out 83% of its free cash flow in dividends in the most recent quarter . Currently McCormick pays shareholders $1.48 per share per year and yields 2.1% annually.

Food for your portfolio
B&G Foods sells food under brand names such as Maple Grove syrup, Cream of Wheat, and TrueNorth nut cluster snacks.  In the most recent quarter, B&G Foods grew its revenue 16% with acquisitions contributing to all of the company's revenue growth . Factoring out the acquisitions, sales experienced a 5% decrease meaning that the company doesn't demonstrate a current ability to grow revenue internally. Its net income declined 9% during the same time frame while its free cash flow increased 35% . Increased selling, general, and administrative expenses as well as increased interest expense contributed to the decline in net income.  Timing of cash received from customers and accrued expenses contributed to the increase in free cash flow.  

B&G's cash balance amounts to 5% of stockholder's equity. The company possesses a debt laden balance sheet with long-term debt to equity coming in at 226% last quarter. B&G Foods does pay a dividend and paid out 61% of its free cash flow in the most recent quarter.  Currently the company pays shareholders $1.36 per share per year in dividends translating into a yield of 4.2% annually.

Now what?
Church & Dwight has demonstrated an ability to grow revenue internally without needing to buy other companies. Both Church & Dwight and McCormick also possess lower long-term debt than B&G Foods. Church & Dwight and McCormick definitely deserve more of your attention while investors may want to shy away from B&G foods. Also, as a bonus to long-term investors in both Church & Dwight and McCormick can collect dividends while waiting for capital gains.

Even more solid dividend paying picks
The smartest investors know that dividend stocks, like McCormick and Church & Dwight, simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.


William Bias has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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