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Top Food Producers for Growth and Income Investors

By Kyle Colona – Mar 24, 2014 at 12:40PM

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Investors with a long-term view in search of growth and income should consider food- production companies like General Mills, Hormel, and Kraft.

Investors in the food-production sector can find several solid growth and income opportunities. Companies in this sector provide consumers with an array of commonly sought-after products. This includes food-production leaders like General Mills (GIS 3.07%), Hormel Foods (HRL 2.02%), and Kraft Foods (KRFT.DL).

General Mills -- a leader in cereals and other foodstuff
General Mills is well positioned as a leading cereal maker, especially with regard to its Cheerios line. The company also offers a variety of other moneymakers like soup and yogurt with its Progresso and Yoplait brands. General Mills also plans on introducing new products that management believes will support long-term earnings growth.

The best thing about General Mills is its long history of paying dividends. Earlier this month, the company's board of directors declared a quarterly dividend of $0.41 per share, payable May 1, to shareholders of record as of April 10 -- an 8% increase from the previous quarterly rate of $0.38 per share. Moreover, General Mills anticipates dividends per share in fiscal 2014 to come in at $1.55, an increase of 17% from $1.32 in the prior fiscal year.

Chairman and CEO Ken Powell said, "We expect dividends to grow with earnings over time, and we see this dividend growth as a key component of our long-term shareholder return model."

General Mills also reported results for the third quarter of fiscal 2014 this week that showed sales, operating profit, and earnings per share lower than year-ago levels. Company management attributed this to "generally weak food industry trends during this period" as well as "negative foreign currency effects." The weak food trend was said to be due in part to this year's harsh winter weather.

The dip in sales performance is really cyclical and does not appear to be a long-term threat, however. Anyway, it should not dampen investor enthusiasm for continued robust dividend payouts.

Hormel's cornucopia of products
Hormel Foods is strong in many ways and has a history of consistent revenue and earnings growth. And like General Mills, Hormel also has a long track record of dividend increases. In fact, the company paid its 342nd consecutive quarterly dividend effective on Feb. 14, at the annual rate of $0.80.

All things being equal, this trend should continue. That's because of Hormel's diverse line of grocery products, refrigerated foods and sandwich meats, and its history of successfully adding new products to its grocery cart.

The company recently reported its performance for the first quarter. Results were highlighted by record diluted earnings per share of $0.57, up 19% from $0.48 per share; also fueling results were operating profit increasing by 20% and record dollar sales of $2 billion, up 20% compared to the year-ago period. In particular, the company's earnings remained smooth partly because of its acquisition of Skippy products.

"Our recently acquired [Skippy] peanut butter business was a strong contributor to our Grocery Products segment results this quarter," said Jeffrey M. Ettinger, chairman of the board, president, and chief executive officer.

Kraft Foods' big shopping basket
Kraft Foods is one of the largest consumer packaged-goods companies in the U.S., with annual revenue topping $18 billion.

The company's food basket includes well known brands like Kraft, Maxwell House, Oscar Mayer, Velveeta, Jell-O, and Lunchables, among others. These products may not seem very sexy at first glance, but since Kraft split from its parent in 2012 (now going by the name Mondelez International), Kraft is leaner and meaner, so to speak, which will improve margins and allow it to continue increasing its dividend.

In fact, the company's board recently declared a regular quarterly dividend of $0.525 per share of common stock. The distribution is payable on April 25 to shareholders of record as of April 11.

Foolish food for thought
The food-production sector provides consumers with an array of widely known and popular consumer packaged goods, sandwich meats, and refrigerated products. One caveat is the challenge facing each company because of growing consumer concerns about the use and labeling of genetically modified organisms in food production.

As I have previously written, General Mills was the first to confront this challenge. Last year the company announced it will eliminate GMOs from its original Cheerios cereal and work to label GMO sources. And Kraft is also moving in a healthier direction with a recent announcement that artificial preservatives will be eliminated from its individually wrapped cheese slices. Ultimately, the question remains as to whether the food-production sector is nimble enough to meet the GMO challenge and whether modified plants are actually harmful.

That being said, this sector will continue to provide consumers with products they have come to know and continue to buy. And General Mills, Hormel, and Kraft each have proven histories of revenue and earnings growth with generous helpings of dividend yields. This makes these companies good buys for investors with a long-term view.

Kyle Colona has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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