Keep seeing the same brands on your trips to the supermarket or big box store?
That's not deja vu, it's a sign those companies have grabbed big chunks of their respective markets and earned the valuable shelf space at major stores... and that type of commanding position can make for good investments.
Need to spice things up?
Dylan Lewis (McCormick): Investors may not think of McCormick & Company as a particularly sexy stock pick, but the spice company has solidly beaten the market over the past few years as consumers continue to crave the company's offerings.
The company's sizable portfolio of brands, from its namesake spices to Old Bay Seasoning and Zatarain's mixes, make it tough to miss as you walk through supermarket aisles. That massive presence has allowed the company to be a price-maker, and pull in over 40% gross margins in the process.
Looking forward, the solid growth investors have enjoyed over the past few years should continue -- management is aiming for 5 to 7% revenue growth this fiscal year and earnings-per-share growth between 9 and 11%. The company is priced for some growth, currently trading slightly above the market at around 28 times trailing earnings, but quality companies with long track records of success like McCormick are worth paying a premium for.
On that note, the company is a dividend aristocrat, having raised its payments annually for over 25 consecutive years. As it currently stands, McCormick shells out less that half of its earnings to maintain its 1.8% yield, so there's nothing stomach-churning about the company's quarterly payments.
Dividend growth at a sprinter's pace
Keith Noonan (Nike): If you're looking for a stock that combines the qualities of an attractive valuation, growth prospects, and big dividend growth, Nike is a standout. The company's stock has seen setbacks over the last year, falling 6.5% as the S&P 500 index has gained more than 15% due to a weakening retail climate and market share gains for competitors Adidas and Under Armour, but the recent turbulence has created opportunities for long-term investors.
Nike's payout currently yields just 1.4%, but the footwear and apparel leader has raised its annual dividend for 15 years running and sports a modest 30% payout ratio. The Swoosh has increased its payout at an average annual rate of 15.6% over the last five years and 14.7% over the last decade -- that's stellar dividend growth and points to an attractive proposition for income investors. If Nike were to raise its payout at a rate of 12% a year from here on out, shares purchased at today's prices would yield 2.4% five years from now. 10 years down the line, today's shares would yield 4.3%.
Nike trades at roughly 22 times forward earnings estimates, which is higher than the S&P 500's average forward P/E of 18 but still an attractive price given the strength of the company's brand and business and its room for growth in international markets like China and Western Europe. With dividend reinvestment and the stock's significant room for capital appreciation, Nike has the potential to be a huge winner over the next decade.
Having too much fun
Rich Duprey (Hasbro): There's good reason for toymaker Hasbro to be riding high: not only are its toys selling well, but it has a portfolio of hit movies due to come out that will further pad the top and bottom line, not to mention further additional toy sales. Who knew making toys could be more fun than playing with them?
Hasbro has been on a hot streak, and is pulling further away from rivals like Mattel (NASDAQ:MAT) and JAKKS Pacific (NASDAQ:JAKK). It has been so successful that companies either want it in charge of their product lines or the competition wants to emulate its success. Not everything Hasbro touches is golden, but the miscues are few and far between so they can easily be forgotten.
Last year, of course, it launched the Frozen and Princess line of dolls after Disney (NYSE:DIS) stripped them from Mattel and gave them to Hasbro. While that prompted a huge quarter for it last year, the toymaker said global point of sale remained strong for the dolls this year, while also benefiting from Disney's other releases, including Beauty and the Beast, Elena of Avalor, and Moana.
There is also the enduring popularity of both the Star Wars and Transformers franchises, and with the release of new movies for the former, along with anticipated next installments of the latter, Hasbro at the box office has been a big success too.
Yet those marquee brands tend to crowd out the success enjoyed by its more traditional gaming segment, which saw revenues surged 43% last quarter on the success of new games like Speak Out, legacy ones such as Dungeons & Dragons, and recent favorites like Pie Face. In fact, Hasbro has had the unique ability for its various segments to pick up the slack caused by others momentarily stumbling. Where franchise and partner brands were weaker this time out, its gaming and emerging brands were strong.
At 23 times earnings and 20 times next year's estimates, Hasbro isn't exactly cheap, but it doesn't seem overvalued either. And because of its overwhelmingly dominant position in the toy market, it can be argued it deserves the premium. There's no indication the strength it's exhibited will be letting up anytime soon, which makes its dividend yield of 2.2% annually an inviting play that smart investors would be, well, smart to consider.
Dylan Lewis owns shares of Walt Disney. Keith Noonan has no position in any stocks mentioned. Rich Duprey has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Hasbro, Nike, and Walt Disney. The Motley Fool recommends McCormick. The Motley Fool has a disclosure policy.