If you're trying to build generational wealth, you shouldn't think about getting rich quick. It's all about creating a portfolio of companies that are built to last. On that score, you should keep old favorite Coca-Cola (KO +1.36%) and relatively young Chipotle Mexican Grill (CMG 4.15%) on your wish list, while Hormel Foods (HRL +0.88%) might be worth adding to your portfolio right now. Here's a quick look at each stock.
1. Coca-Cola is a behemoth
With a market cap of roughly $270 billion, Coca-Cola is one of the largest consumer staples companies on the planet. Don't underestimate the benefit this has for the company and for investors. For starters, Coca-Cola's business is underpinned by a stable of iconic brands, notably including namesake Coke. Moreover, the company has a global distribution network and the financial firepower to support its brands with advertising. And it's big enough to buy its way into new products and categories over time.
NYSE: KO
Key Data Points
The consumer staples sector is one in which retailers and end consumers are both seen as customers for companies like Coca-Cola. The advantages Coca-Cola generates from its size work to entice consumers into stores and, thus, get stores to buy Coca-Cola products for sale. Small competitors that can't match up often don't get the same shelf space, effectively cementing Coca-Cola's already dominant position. But if the smaller competitors are on to something new, well, they and their hot new product might just end up a part of Coca-Cola. These are the many reasons Coca-Cola is a Dividend King, with over 60 years of annual dividend increases behind it. The dividend yield is roughly 3% today, well above the 1.3% on offer from the S&P 500 Index.
2. Chipotle Mexican Grill is established, but still growing
Compared to a company like McDonald's, Chipotle Mexican Grill is still just a kid. But it has clearly established itself as a dominant force in the restaurant sector. In fact, the company's fresh made assembly line format has been copied many times over, including by recent market darling Cava. Chipotle has done so well for so long that its stock rose to herculean heights, leading it to a huge 50:1 stock split to get the price back down to the level where mere mortals could afford to buy a share. The best news? Despite the already impressive growth in Chipotle's business, it is still showing impressive signs of strength.
NYSE: CMG
Key Data Points
For example, in the first quarter of 2024 the company's overall sales rose a huge 14% year over year to $2.7 billion. For reference, the first-quarter top line at McDonald's was nearly $6.2 billion, so there's still plenty of room for growth ahead at Chipotle. But the really interesting number was Chipotle's same-store sales, which came in at 7%. Half of that figure would be considered good, noting that McDonald's managed only 1.9% in the quarter. What this tells you is that Chipotle is still benefiting from strong demand, which should allow it to keep opening new restaurants for the foreseeable future. Chipotle is focused on investing for growth, so it doesn't pay a dividend. But if you don't mind that fact, it looks like the kind of stock that you could hand on to the next generation for safe keeping. That said, the stock is always expensive, so waiting for a market downturn might lead to a better entry point.
3. Hormel's dividend yield is historically high
Like Coca-Cola, Hormel Foods is a Dividend King. It has increased its dividend annually for 58 consecutive years. It isn't nearly as large as Coca-Cola, but it does have a stable of industry leading brands, like Spam and Planters, among many others. It is also highly innovative, bringing out "new" and "improved" products with great regularity. The words "new" and "improved" have particular power with consumers, which is one of the reasons retailers like to work with Hormel. So why is the stock's yield near its highest levels of all time at 3.7%?
NYSE: HRL
Key Data Points
The quick answer is a perfect storm. Hormel wasn't able to pass price increases on to consumers as well as its peers, margins got squeezed by inflation, avian flu has been pretty bad lately, sales in China have been slow to recover from COVID lockdowns, and the company bought the Planters brand right as the nut category of the snack sector was slowing down. Any one of these problems alone wouldn't be too big a deal. All five at the same time has investors worried that Hormel's best days are in the past. Given the company's long and successful history, though, it seems reasonable to give the management the benefit of the doubt. And you'll be paid well to wait for Hormel to muddle through to better days.
One to buy, one to consider, and one to watch
Given the negative sentiment around Hormel today, it looks like an attractive long-term buying opportunity. Coca-Cola isn't exactly cheap, but it isn't exactly expensive, either. If you want to create a reliable income stream, you might want to take a closer look. Chipotle has the best growth prospects of the three, but investors are pricing in a lot of good news. If there's a bear market and investors throw the baby out with the bathwater, as is normally the case, you might want to jump aboard.
