Wrigley's Sales Inflate

In our Motley Fool Income Investor newsletter service, we've selected many companies that have outperformed the market over the past few years by a substantial amount. Still, it's rare that a company with a substantial dividend would move more than 5% in a given day. Some might even say there's a rule that high-yielding dividend stocks don't make big moves. Yesterday, Income Investor selection Wrigley (NYSE:WWY) bubbled up more than 13%, making the idea of such a rule look silly.

The price movement primarily came from stronger-than-expected results. Sales for Wrigley's third quarter increased 11%, and earnings per share increased 15%. The company attributed two percentage points of those sales gains to a weaker dollar compared to the euro, but 9% sales gains aren't too shabby. It's important to note, though, that the last 2% is spread largely across the same costs, because of the operating leverage in the business. Looking around the globe, the company saw 7% sales gains in North America, 30% in China, and 23% for all of Asia.

Gross margins were 53.1%, versus 53.7% last year. That's a 60-basis-point drop, but it's also a one-percentage-point improvement from the second quarter. Operating margins were slightly stronger. Unfortunately, Wrigley doesn't provide balance sheet or cash flow items with its earnings release, but when it releases its 10-Q, we'll be able to provide a full look at all three statements in a Fool by Numbers.

Wrigley, like Procter & Gamble (NYSE:PG), PepsiCo (NYSE:PEP), and a handful of other companies that provide consumer staples, belongs to a club of stocks that are never really cheap on an absolute basis. This is mostly because these companies have tremendously strong brands that have endured multiple economic cycles and competitive threats. There's always mid-single-digit growth priced in when high-single-digit growth is probably the more reasonable long-term growth expectation. In other words, it's possible to get a good price, hold for many years, and get a great return, but getting a great price is quite rare.

That doesn't mean these stocks are taboo, but it does mean that if you buy them, you'd better be sure you're paying for growth below what their potential is, and you'd also better be prepared to hold for years. Fortunately, holding these companies for years is made easier, because with some patience, they can be had with dividend yields between 2% and 3%, and they tend to grow their dividends in line with their earnings. If you've set your expectations properly and are prepared to hold for a long time, such companies can offer a relatively painless path toward market-beating returns. And every once in a great while, you might get a big jump like Wrigley saw yesterday.

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At the time of publication, Nathan Parmelee had no financial interest in any of the companies mentioned. The Motley Fool has an ironclad disclosure policy.