Dividends: The Breakfast Of Champions

Not long ago I wrote an article titled, “Investing Ideas From My Bathroom,” which got a lot of positive responses and while sitting one day eating my breakfast, a bowl of Cheerios, I thought to myself that there are a great many dividend stocks represented by typical breakfasts all over the world. I always believed that dividend investing and finding investment themes doesn’t have to be difficult if you just know where to look. You don’t always have to be ahead of the proverbial curve with the latest tech stock if you just stick to the basics. And what could be more basic than an honest bowl of cereal?

 

With that, I want to highlight a typical breakfast, dividend style, for most people broken down into three categories for the purpose of this article. First we’ll discuss the big cereal manufacturers, then the breakfast meat players and finally the beverage companies that are present on many breakfast tables.

 

 

First up is dividend stalwart General Mills, Inc. (GIS). A company that really needs no introduction and has been discussed numerous times on many financial blogs GIS gets a lot of attention for good reason. From the makers of Cheerios, Wheaties, Trix, Lucky Charms and more to Yoplait and Bisquick, GIS offers patient investors a very lofty yield of 3.0% which is very high by any measure for such an established company. Silly rabbit GIS is for dividend investors. It has raised its dividend for over 10 years straight making it a true champion among dividend growth investors and sports a moderate payout ratio of 57.1% which definitely allows for some future dividend growth. In terms of value, GIS has been played up in recent times and may be a little overvalued with a PE of 20. While in line with its peers it is much higher than its past 5 year average PE which is 16. I guess this could be a testament of how popular the stock has been over the past several years and investor demand for the stock has driven up the price.

 

Next up is another cereal and breakfast giant, Kellogg Company (K). The makers of Raisin Bran, Fruit Loops, Frosted Flakes and Eggo to name a few K has been a generous dividend payer going back several decades and currently offers a decent yield of 2.70%. A steady dividend payer and grower the past nine years K’s mix of wildly popular brands can almost ensure its dividend history continues well into the future. Its low payout ratio of 46.1% leaves plenty of room for dividend growth and best of all K seems to be very undervalued by current PE measures. K’s PE is at a low 13.2 which is well below its peers and the S&P. Looking for some value in the market today? Perhaps nibble on some K.

 

So the next time you are pouring your milk and are about to enjoy a bowl of Cheerios or Corn Flakes, pancakes or waffles think about the dividend companies that brought these foods and the millions of other people that are doing the same thing as you during breakfast time.

 

Moving along what breakfast wouldn’t be complete without one of the most popular breakfast meats around, sausage! Welcome to The Hillshire Brands Company (HSH). From the makers of Jimmy Dean breakfast sausages and breakfast sandwiches to various other pork, beef, and poultry products HSH has a long history of being on peoples breakfast tables. HSH has been in the news a lot recently because of a takeover bid being offered by rival meat processor Tyson Foods, Inc. (TSN). Who says there is no excitement with “boring” stocks? HSH currently offers a relatively low yield of 1.31% and an equally low payout ratio of 40.2% which means this dividend is definitely safe. Because of all the recent chatter about a takeover from TSN the PE of HSH has been driven up as one would expect. Currently, HSH’s PE stands at 29.7 which is way higher than its peers and the S&P in general. That being said, I would never advocate buying a stock simply because it is a takeover candidate and the recent run up in the HSH share price shows that the takeover price might already be baked into the stock. Tread cautiously around this one.

 

Now for those who love the taste of Spam for breakfast, bacon, Canadian bacon or perhaps something a little healthier like Jennie-O Turkey then Hormel Foods Corporation (HRL) may be the dividend stock for you. HRL has one of the longest dividend histories in the business growing its payout for almost 50 years. It currently yields 1.63% and has a low payout ratio of just 36.7%. I have a feeling HRL will continue its dividend growth for quite some time. Its valuation may be a bit rich for the day with a PE of 24, but I guess that’s what happens when investors buy up a long term quality dividend stock like HRL. The annualized dividend growth rate for HRL has been impressive as well growing at almost 11% a year for 20+ years. That is one quality I always look for in a dividend stock, the annualized dividend growth rate.

 

We have enjoyed a tasty bowl of cereal with some waffles and perhaps some bacon but we need to wash it down with something healthy and full of vitamins. How about, a nice tall glass of orange juice? And what better way to find a dividend investment than with one of the more popular juice brands found on breakfast tables, MinuteMaid.

 

The Coca-Cola Company (KO), a company that requires no introduction is the maker of its popular namesake product but also the brand owner of MinuteMaid orange juice. If you are reading this you already know about KO and its very long and rich dividend history and its most famous investor Warren Buffett. Nevertheless, lets look into some of the numbers for KO. KO currently offers a relative high yield of 3.0%, which in today’s climate is very generous. It has a very long track record of raising dividends going back over 50 years and had a moderate payout ratio of 58.7% making its current yield and dividend safe. By valuation standards KO’s PE is a little high at 21.9 but like HRL investors are paying up for quality. One other note about KO is its stake in Keurig Green Mountain, Inc. (GMCR) which gives KO access to the largest single cup coffee company in the world. Whether it’s OJ or a cup of Joe KO has you covered.

 

Finally, we have Pepsico, Inc. (PEP). Another great dividend paying company that has a spot on everyone’s breakfast table with its line of Tropicana juices. Looking at the numbers for PEP we find another generous yield at 3.10% with another long history of raising dividends going back over 40 years. Like KO, PEP offers a moderate payout ratio of 57.7% making this another safe dividend stock. PEP’s valuation though is a bit less than KO with a PE 19.8 which might make it a decent buy even at current levels. Nevertheless, PEP would always make a great addition to any dividend growth portfolio.

 

What do you think about building a dividend portfolio around your breakfast? Let me know.

 

Disclosure: Long GIS, KO, PEP

Image courtesy of: Sira Anamwong at FreeDigitalPhotos.net

24 thoughts on “Dividends: The Breakfast Of Champions

  1. DivHut,
    Good list here. Consumer staple companies are usually great dividend payers. I regret not buying into GIS earlier. It’s had a big run up this year. Next decent dip and I’ll be a buyer.
    -RBD

    • RBD,

      By now you should know my fondness for the consumer staples sector. Definitely keep GIS on your radar. No one knows when a good buying opportunity will come for many of the stocks in the sector but in the meantime you can always nibble on a position. That’s how I entered every single position in my portfolio. Very little at a time. I got to average down when 2008/9 hit and slowly average up too in recent years. Thanks for stopping by.

  2. (The products of) consumer staples companies are everywhere. Nice post DivHut. General Mills and Coca-Cola are actually my largest two holdings. I do think this sector is generally overvalued currently, like the broader market. I know for sure that I’m not selling these companies though
    -Bryan

    • Hi IS,

      As you can see from my portfolio I am a big fan of the consumer staples sector. There is no question of its ability to be incredibly defensive while providing a stable and growing income stream via dividends. Yes, it’s true that many in the sector are overvalued but as I said in the article people seem to be buying into quality. Sometimes, you have to pay up a little for the great companies. Thanks for the comment.

  3. lol great article. I was thinking the other day while I was out driving of every storefront I seen and how much they were paying in dividends. I am getting a little bit obsessed!

    Good Day and Grind On!

    • AG,

      Thanks for stopping by. Glad you like my recent article. I don’t think you are being obsessed at all. When I drive by a Taco Bell or McDonald’s I say “thank you” to the people in the drive-thru. Keep those dividends rolling in.

  4. For the oatmeal lovers out there, I believe Quaker Oatmeal is also owned by Pepsi. Pepsi is an awesome brand. When you make it to your laundry room, I look forward to seeing a writeup on GE, Whirlpool, Clorox, and Procter & Gamble. 🙂

    MDP

      • Hi Mabelle,

        PEP has been a long time stock of mine and I plan to keep it for several decades if possible. One of the amazing things about PEP is its diversity among brands and products. Just keep an eye out for its PE so you don’t over pay and in the long run you should be happy with PEP. Thanks for stopping by.

    • Hi MDP,

      You are correct about Quaker Oats and Pepsi. PEP is a great stock and seems to have a lot of fans in the blog community. I haven’t thought about the laundry room but that is definitely a stop in my “house tour” of dividend stocks. I have some other ideas for stock themes that are a little more obscure. Keep an eye out for them in the coming weeks.

  5. Great post! I am a huge fan of companies like the ones you just mentioned– great businesses that have been around for generations and which offer a healthy dividend! I missed the “bathroom” post– definitely catching up today!

    • Glad you enjoyed the post. One thing I have always been saying if you are a beginner is that investing ideas and themes do not have to be difficult to spot. Forget about the latest trends and hot stock. Stick to the old businesses creating products that have survived generations and wars etc. You’ll be OK.

  6. Some excellent dividend growers in this industry. My shelves are stocked with foods from companies like PEP, UL, GIS and KRFT. Things like Stacy’s Pita Chips (PEP), Cheerios & Progresso soups (GIS), Velveeta (KRFT), and Knorr side dishes (UL). Love the products and the dividends those companies pay. I ought to buy more KRFT, I spend way more on their products than they send me in dividends!

    I derive pleasure buying products from the companies I own. Kind of weird now that I think about it.

    • Hi CI,

      Not weird at all. Many times at the grocery store I opt for a product from a company that I own instead of from a brand that I do not own. So you aren’t alone in that regard at all. It’s amazing how much one can learn simply by looking at the products in one’s home. Thanks for the comment!

  7. DivHut, thanks for the article. My biggest regret is that I didn’t buy more KO, PEP on the dip a couple months ago. I have never looked at Hormel, i’ll have to check it out.

    • Hi Mr. SF,

      In time KO and PEP should get within a normal PE range and you’ll be able to pull the trigger. One thing about long term investing is that if a buying opportunity has passed all you have to do is wait it out and an attractive entry point will present itself eventually. In the meantime, there are other more attractive places to put your PEP and KO money. HRL is a great long term dividend play that most bloggers never seem to write about. It has a very long history of increasing dividends and has been a solid consumer staple as well. These days the price might be a bit rich but as I mentioned in the article people seem to be paying up for quality.

  8. This is a great series and a good way to look at each sector. I’m looking forward to owning many of these names eventually 🙂

    I hope you’ll do one on the car ride to work? Oil, auto parts, car, and such companies? Keep up the great work, very enjoyable!

    • Hi Ryan,

      I’m glad you find my articles helpful. My aim is to write easy to understand dividend stock profiles focusing on different investment themes. As I say in my articles, “finding an investment theme doesn’t have to be hard.” I have many ideas for highlighting different types of dividend stocks following certain themes. Thank you for stopping by and commenting and look forward to more articles.

  9. Great summary. I just added some K stock to my portfolio. It is one of a handful of stocks that seems to be reasonably priced right now. The dividend is sub-3% but still should be a steady stock in the long-term.

    • Hi DD,

      Glad you enjoyed dividends for breakfast. K is a great pick and a while back I was deciding between K and GIS much like many of the bloggers choose between PG and UL. I might add some K myself to my portfolio once I reduce my overweight consumer staple sector. Thanks for he comment.

  10. HI DivHut,

    Great and easy to understand way of find stocks. Some people may think when you think about ‘investing idea from washroom’ :D, but it is absolutely true and recession proof way of thinking. People go to washroom everyday, brush, bath, clean, etc. Also, eat breakfast, drink something even in good & bad economy.

    I have few of your holding that you mentioned above (KO, GIS). I will buy K and PEP when some money available to invest.

    Best Regards,

    • Hi FJ,

      Thanks for stopping by and commenting. I think if more people stick to the basics of investing instead of trying to discover some new ‘exotic’ investment they’d be better off. There is nothing more basic than the bathroom or breakfast.

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