Benefits and risks of investing in chocolate stocks
Investing in chocolate stocks has its pros and cons. Some of the benefits include:
- Steady growth: Demand for chocolate tends to be fairly stable and grows steadily.
- Income: Many publicly traded chocolate companies pay dividends.
- Inflation hedge: Most chocolate companies can pass higher costs through to consumers.
On the other hand, some cons include:
- Changing consumer tastes: Chocolate companies need to innovate as consumer preferences shift, including the current trend toward healthier, lower-sugar options.
- Cocoa prices: Cocoa costs can be volatile. While many chocolate companies aim to pass on cost inflation to customers by raising prices, many consumers have started buying less chocolate in response to rapidly rising prices.
- Limited pure-play options: Most of the top chocolate companies also sell salty snacks, candies, and other food products, making them less of a pure-play on the growth in chocolate demand.
Methodology: How these stocks were chosen
Few publicly traded companies focus on chocolate. As a result, I looked more broadly at the food industry for companies that have chocolate businesses to provide you with more options. This group stood out as one of the best ways to capitalize on the growing global demand for chocolate.
Should you invest in chocolate stocks?
The chocolate market is growing at a solid rate. Analytics group Future Market Insights projects that the global chocolate market will grow at a 3.3% compound annual rate over the next decade. That would see the global chocolate market nearly hit $180 billion by 2035.
That's not a blistering growth rate by any means. Further, industry profitability can fluctuate due to volatility in cocoa and chocolate prices. Despite that, the expected continued growth of the global chocolate market, along with the dividends many of these companies pay, suggests that chocolate stocks could still deliver tasty total returns for investors in the coming years. So, if gradual growth accompanied by dividend income is what you're after, these chocolate stocks could be right up your alley.
