I like dead-simple stocks -- businesses that are easy to understand and whose models produce steady returns over the long haul. But because such businesses may not be as sexy as a young biotech or technology company, some investors will dismiss them with a yawn.
Investing legend Peter Lynch loves boring businesses, too, because they're often overlooked by the market until their advantages become so obvious that everyone begins piling in. In these trying times on Wall Street, I've been hunting for a few such stocks that are ripe for the picking. Here are three I found.
Better yet, each pays a dividend, and they all have long histories of boosting their payouts every year.
Image source: Getty Images.
Tootsie Roll Industries
When you were a kid, you may have had Dubble Bubble chewing gum or Charms Blow Pops, and if you went to the movies, you may have bought a big box of Junior Mints. And it's almost impossible to have missed out on the chocolate-flavored taffy logs that Tootsie Roll Industries (TR 1.14%) is named after.
The company has been making confections since 1896, and it has largely stuck to its knitting with classic brands (even in its acquisition strategy), not pursuing the latest fads in snacks and candy. Some might look at that strategy and conclude that the company has missed opportunities; on the other hand, Tootsie Roll has followed the adage that says you should do one thing, but do it well.
Its revenue growth tends to be slow but steady, and has admittedly been impacted at times by industry trends, such as the rising demand for healthier snacks, though its profits have generally remained stable. It does have some customer concentration risk in that Walmart accounts for almost 23% of total sales and Dollar Tree represents 13%, though there's no indication either of those relationships is in any danger.
Arguably the biggest risk investors face with Tootsie Roll is that the Gordon family, which has run the company for decades, holds a controlling interest in it. Matriarch Ellen Gordon is CEO, and the family's majority voting stake means they will essentially decide which way the candy maker goes.
They've basically targeted a 1% dividend yield for their payout, though they have increased the payout annually for over 50 years, which makes the stock a Dividend King, and one that investors with a sweet tooth just might want in their portfolio.
Stanley Black & Decker
Toolmaker Stanley Black & Decker (SWK -0.08%) also has a simple business and a long history of raising its dividend -- 55 straight years and counting -- and it has paid one for 146 consecutive years. Few companies can boast a longer track record.
Beyond owning the Stanley and Black & Decker brands, the company also owns many others on the market: Craftsman, DeWalt, Bostitch, Irwin, Mac Tools, MTD Products, and Porter-Cable.
Yet in the face of rising inflation, supply chain issues, and a slowing housing market, Stanley Black & Decker's stock price has tumbled almost 60% in 2022. Its shares now trade at 13 times trailing earnings, 11 times next year's estimates, and just a fraction of its sales.
Through a program of cost-cutting and inventory reduction, the toolmaker believes it can increase its gross margin to 30% next year (it's currently just under 28%) and to 35% by 2025. Management also expects that its targeted investments will let it grow organically at two to three times the rate of the market.
Shareholder returns remain a top concern for management, which is pursuing a capital investment strategy under which half of its available resources are dedicated to mergers and acquisitions, and the other half are returned to investors. That strategy could reward shareholders for years and years.
Nike
Nike (NKE -0.06%) doesn't have quite the extended dividend-paying history of Tootsie Roll or Stanley Black & Decker, but the sports apparel powerhouse has increased its shareholder payouts for 20 consecutive years. That streak puts it within striking distance of becoming a Dividend Aristocrat.
However, the sneaker maker also finds itself in an unfamiliar situation. Its stock has been in free fall all year long and has lost nearly half its value in 2022 as China's economic growth decelerates. Nike's sales there slid 13% last quarter, leading to a 23% drop in segment operating profits. Inventories became inflated as a result, which forced Nike to discount its wares to move the excess.
Nike still has a strong direct-to-consumer business that it launched years ago and which continues to expand, while its gross margins remain resilient even in the face of current conditions. High energy and transportation costs could sap its margins, but the apparel company still has plenty of growth drivers.
Nike was also selected as the top brand choice among teens in the latest Piper Jaffray survey, which indicates its halo has not been tarnished. As such, the company should have plenty of opportunities to regain its balance.
