One Sweet Stock

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How do you define a sweet stock? How about one that has risen steadily for 25 years, is producing more than $500 million in annual trailing free cash flow, and is investing heavily in its future?

Producing those results is a household name: chewing gum king Wrigley (NYSE: WWY).

When the company announced 2004 results, it had a familiar ring. Revenue for the year was up 19%; earnings were up 11%. Sweet!

Wrigley believes in sharing its sweet wealth with shareholders. It is raising the quarterly dividend by 19% to $0.28 a share (a 1.6% yield annually). Could high insider ownership -- something the Motley Fool Hidden Gems newsletter looks for -- be a reason? You bet! Insiders own 26.8% of Wrigley, and they want to get paid.

Wrigley is not about milking a cash cow. It is actively looking to grow through acquisition. Although the company made front-page news in its failure to acquire Hershey (NYSE: HSY) in 2002 for $12 billion, the company did buy the Joyco Confectionary business's assets for $272 million in early 2004 and is poised to swallow $1.5 billion in debt to add Kraft's (NYSE: KFT) Altoids and Life Savers brands to its empire.

Wrigley's stock is arguably priced at a premium: more than four times sales, 21.7 times cash flow, and 32 times trailing earnings. It has been that way for years.

Compared to that of its peers, Wrigley's value looks compelling. Topps (Nasdaq: TOPP) has one-fourth the revenue growth and operating margins but still trades at 30 times earnings. Tootsie Roll (NYSE: TR), after buying Canadian Concord Confections for around $200 million (which increased Tootsie's market cap by about 20%), has reported only slight earnings growth for the combined company. Still it trades at 25 times earnings. Only debt-heavy and more broadly diversified Cadbury Schweppes (NYSE: CSG), with operating margins half those of Wrigley's, is priced at a near-market multiple of 21 times earnings.

You can find concerns that Wrigley is overpaying for Kraft's assets. But investors buying Wrigley are looking at 25 years of success, great free cash flow, and what looks to be a promising future. That's a sweet combination.

Fool contributor W.D. Crotty does not own stock in any of the companies mentioned. Click here to see the Motley Fool's disclosure policy .