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