Though Sara Lee itself has flatlined since 1996, it has spun off a number of more successful companies. Investors who hung on to Coach
The spinoff will shrink Sara Lee to almost half its current size, making it primarily a food company. The slimmed-down Sara Lee will sport the Ball Park hot dog and Hillshire Farms sausage brands, but will also retain Kiwi Shoe polish and Sanex skin products, among others.
Value investors who scooped up Sara Lee and Tupperware at significant discounts are hoping against hope that their turnarounds are in the works. But even a value strategy can be a long shot; watching Sara Lee divest itself of businesses can get unsatisfying after a while. That's where an income investing strategy comes in.
Get paid to wait
From a stock-appreciation perspective, both Sara Lee and Tupperware represent value traps. But income-oriented investors who buy these types of stocks are being paid a significant dividend to wait and see whether operations -- and the stock price -- eventually improve. According to Yahoo! Finance, Sara Lee currently pays a 4.5% annual dividend yield.
For savvy Fools such as Mathew Emmert, lead analyst for the Motley Fool Income Investor newsletter service, getting paid to wait is just fine. Mathew insists only that his investments have a favorable projected risk-reward trade-off, or a lower downside risk relative to their potential upsides. Sara Lee and Tupperware meet both these criteria for him, and they've helped Mathew's newsletter score average returns of 13.15%. Not bad for waiting.
As with any value trap, value investors hold out hope that Sara Lee's remaining operations will someday improve. Perhaps soon, rather than comparing Sara Lee with Tupperware, we'll be likening it to Kraft Foods
But for investors interested in a dividend-fueled income stream, that particular value trap may not be so bad. MotleyFool IncomeInvestor followers are happily reaping the benefits of companies that distribute excess cash flow to shareholders, rather than reinvest the proceeds into stagnant businesses. In these cases, getting paid to wait can be a profitable pursuit indeed.
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