Dividend-seekers are attracted to packaged foods companies in part because they boast two things income investors crave: predictable sales growth and above-average profitability.
Here's a look at a few of the biggest players in this dividend-heavy industry.
Top packaged food dividend stocks
|
Stock |
Market Cap |
Dividend Yield |
Payout Ratio |
|---|---|---|---|
|
Nestle |
$252 billion |
2.8% |
81% |
|
General Mills |
$32 billion |
3.4% |
70% |
|
Unilever |
$161 billion |
2.7% |
69% |
|
Kellogg |
$25 billion |
2.9% |
93% |
|
JM Smucker |
$15 billion |
2.4% |
49% |
Data sources: Company financial filings and Yahoo! Finance.
Image source: Getty Images.
Nestle
Nestle (NSRGY 0.28%) is the biggest food and beverage company on the planet, with over $90 billion of sales in its most recent fiscal year. The maker of prepared foods brands like Stouffers and Lean Cuisine, in addition to drinks like Nescafe and Coffee Mate, trailed the market last year as its operations stumbled through a weak sales environment. CEO Mark Schneider summed up the performance well when he said, "Our 2016 organic growth was at the high end of the industry but at the lower end of our expectations."
The company expects another year of below-average growth (paired with slight market share gains) in 2017. After that, it expects to climb back to its long-term target pace of 5% or better organic growth by 2020. To get there, executives are targeting attractive segments like coffee and branded water. Patient investors can, in the meantime, collect a healthy 2.8% yield, but they should keep an eye on Nestle's elevated payout ratio for signs of weak raises in the years ahead.
J.M. Smucker
J. M. Smucker's (SJM 0.66%) stock hasn't participated in the market rally over the past year as its latest results failed to impress Wall Street. The company in February lowered its sales growth forecast as its coffee business, anchored by the Folgers franchise, struggles under the weight of falling prices.
Smucker still aims to generate as much as $1 billion in free cash flow this year, though, and that should easily cover the roughly $320 million it's set to pay out in dividends. Thus, income investors might consider grabbing shares of this branded foods specialist. At 2.4%, its yield isn't particularly impressive. But it has plenty of room to grow, especially if management's aggressive growth bets pay off.
Unilever
Packaged foods makes up a relatively small part of Unilever's (UL 0.28%) massive business, but it's a profitable segment. It accounted for 24% of sales volume last year, but 28% of the consumer products giant's operating earnings.
Despite having just logged its second straight quarter of declining sales growth, Unilever is on track to expand market share this year while generating significant profits. It aims to grow organic sales by between 3% and 5% while adding nearly a full percentage point to operating margin. In fact, the company believes it can reach 20% profitability by 2020, up from 15% in fiscal 2016.
General Mills
General Mills' (GIS 1.43%) business has taken its lumps as competitive activity spiked in the industry recently. Sales are down 7% over the past nine months. However, a good portion of that dip was planned, since the company refused to slash prices simply to protect market share. As a result, gross margin rose by almost a full percentage point, so earnings held up far better than revenue -- down 3%.
The slumping revenue trend is a key reason the owner of leading brands like Gold Medal flour, Yoplait yogurt, and Pillsbury dough has the highest yield on our list. Income investors looking for above-average payouts might want to add the stock to their watchlists, especially if its turnaround initiatives start to show signs of progress over the coming quarters.
Kellogg
Kellogg (K +0.00%) has been in business for over a century, and today, it generates over $13 billion in annual sales from its portfolio of snack and food brands including Cheez-It, Pringles, Keebler, and Carr.
The company recently posted an uninspiring 5% dip in organic sales as volume slumped. "We managed through an unusually challenging environment for packaged food companies, including a period of industrywide softening of consumption trends," CEO John Bryant told investors in early May.
Kellogg is hoping to jump back to growth led by the breakfast category that's home to its popular Kashi cereal brands. It recently axed artificial ingredients from its Eggo product line, too, which should help position that franchise better in a market that's racing toward healthier eating. Like Nestle and other packaged food peers, Kellogg believes operating trends will be much better by 2020, with sales growth back near the long-run average and profit margins boosted by cost cuts. Investors who believe that forecast can snap up a quality dividend payer at a significant discount to 2016 prices.
