Sara Lee (NYSE: SLE)
 Trading at $21.18 as of 2/6/04

This article is part of our annual Stocks Fools Love Valentine's Day special. Join us for more Stocks Fools Love here .

If your idea of a good time is sitting around in your undergarments eating pie and collecting dividend checks, you've come to the right investment. As they say, nobody doesn't like Sara Lee(NYSE: SLE), and we income-investing folk stand to benefit a great deal from that fact.

I recently recommended this company to subscribers of our dividend-oriented investment newsletter, Motley Fool Income Investor, and the shares still present an excellent value.

Sara Lee is like the General Electric(NYSE: GE) of consumer products. Its wide array of products compete not only with Kraft (NYSE: KFT) and ConAgra(NYSE: CAG), but Procter & Gamble(NYSE: PG) and Colgate-Palmolive(NYSE: CL). The company is segmented into three main operating units: Food and Beverage, Household, and Intimates and Underwear. This may not sound like the most glamorous stuff in the world -- well, except perhaps for the underwear -- but it's very profitable when you're as innovative as these folks.

Certainly, most of us know Sara Lee makes a mean apple pie and a scrumptious cheesecake, but there's a lot more to this company than dessert. You can also count yourself a customer if you start your day with a cup of Pickwick Tea or Hills Bros. coffee, or toasted Earth Grains bread with a side of Hillshire Farm or Jimmy Dean sausage. Indeed, it's virtually impossible to walk down a Wal-Mart(NYSE: WMT) aisle and not see dozens of Sara Lee products.

From frozen bagels and Ball Park Franks to Underalls and Wonderbras, this company seems to have a leg in just about everything (including Sheer Energy and L'eggs stockings). Ever heard of Bali, Champion, Barely There, Hanes and Hanes Her Way, Playtex, or Unno? All are market-leading product lines.

Buy the numbers
Sara Lee is several years into a restructuring that's beginning to pay off. Earnings per share (EPS) will increase in the 5% range for fiscal 2004, boosted by share repurchases, and I believe long-term earnings will grow at a near 10% clip. Sara also generates mountains of free cash flow (FCF).

If that isn't enough to make your mouth water, consider the company's delectable 3.55% dividend yield. Sara Lee is clearly committed to creating shareholder value via its payout, which it demonstrated last August when it increased its dividend by 21%. That's tasty, but it gets even yummier: Sara Lee has paid a dividend since 1946 -- that's 58 years for those of you playing along at home.

The Foolish bottom line
Let's face it. There's quite a bit of economic diversity in underwear and pumpkin pie. When you couple that with Sara Lee's substantial FCF, you've got a nice security blanket wrapped around a diverse international powerhouse of consumer brands. Even if economic weakness rears its head again, investors will be well paid while they wait for a turnaround.

Trading at less than 13.5 times FCF and less than 13 times forward earnings, the company's shares are about as cheap as a mud pie (fortunately, they're for buying, not for eating). At that price, you can snatch up a decent position and still have money left over for some real junk food  -- like those little Valentine hearts with the messages printed on them. Bon appetit.

Mathew Emmert likes cheesecake, but typically passes on mud pie. He doesn't own any of the companies mentioned in this article, but he does write the Fool's latest investment newsletter, Motley Fool Income Investor. Consider a free trial with no strings attached. The Motley Fool has a disclosure policy.

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