The Pantry Portfolio

It’s no secret that I like the defensive nature of the consumer staples the most. In a recent post I showed you my dividend portfolio sector allocations in which the consumer staples represent my largest holdings by far. Of course, this is by design as I value the very defensive nature of this sector and while it may not represent the highest growth, it does, in general, provide very reliable dividend distributions through some of the toughest economic times. With that being said, I’d like to highlight a few of these “pantry” stocks that one can find in their own home and use as a basis for consideration in a dividend growth portfolio. None of these stocks need an introduction as all should be very familiar to anyone which just goes to show that finding quality dividend stocks does not have to be a difficult venture.

 

First up in my pantry is McCormick & Company, Incorporated (MKC). Makers and distributors of spices, seasoning mixes and condiments, MKC offers its products to both consumers and industrial customers. Go ahead, open your pantry and see if any MKC products are on the shelves or in a spice rack. In business since 1889, MKC also has a very long track record of paying and raising dividends annually. With a current yield of 1.72% this dividend stalwart has been raising dividends for three decades. A moderate payout ratio of just 46.1% ensures a safe current dividend with room for future growth. MKC also sports an impressive ten year annualized dividend growth rate of 9.46%. Who says “boring” doesn’t pay? With a current PE of 30.4, MKC is trading well below the industry average of 39.8 but also above its five year average PE. Forward PE looks better at 26.8.

 

Looking up and down my shelves another pantry consumer staple comes to the forefront, ConAgra Foods, Inc. (CAG). In business since 1919, CAG products are surely found in almost all homes worldwide. Products we all know and love such as, Chef Boyardee, DAVID, Healthy Choice, Hunt’s, Marie Callender’s, Orville Redenbacher’s, PAM, Peter Pan, Reddi-wip, Slim Jim, Swiss Miss, Wesson and much more. With a current yield of 2.13% and a moderate payout ratio of 48.1%, CAG has enough room to continue with its current dividend based on current cash flow. While CAG does not have the extensive dividend raise streak as other consumer staples after a cut back in 2006, current distributions are almost back up to precut levels. From a basic valuation metric, CAG has a current PE of 28.4 which is slightly below its five year average 30.3.

 

Of course, almost no pantry is void of a Campbell Soup Company (CPB) product. Since 1869, the makers of their namesake soups as well as other brands such as Prego, Pace and Pepperidge Farm are a staple in almost every North American household. With a current yield of 2.0% and a moderately low payout ratio of 42.1% CPB also sports a ten year annualized dividend growth rate of 8.94%. With a current PE of 28.4, CPB is trading well above its five year average of 17.4. As CPB is trading closer to its 52 week high the stock seems a bit pricey based on current PE and current yield offered.

 

Looking for the Folgers, Jif, Crisco, Pillsbury or Hungry Jack in your pantry? Then you have come across The J. M. Smucker Company (SJM), makers of many consumer and pet products under the namesake Smucker’s brand as well as Meow Mix, Milk-Bone, Kibbles ‘n Bits, 9Lives, Pup-Peroni and much more SJM is a long standing business going back well over one hundred years. Currently yielding a relatively low 1.85% with a low payout ratio of just 34.8%, SJM sports a safe current yield with room for future growth based on current cash flow. Having raised its dividend for fourteen years straight SJM has a ten year annualized dividend growth rate of 9.47%. Not too bad coming from a PB&J centric company. The current PE of SJM stands at 41.3, well above its five year average of 20.9. A recent run up in stock price from last month has definitely skewed figures.

 

Are any Keebler, Cheez-It, Pringles or pop-tarts in your pantry? If so, then Kellogg Company (K) has found a place in your home. Of course, we are all familiar with many of their namesake breakfast cereals but K is clearly a player in the snack food space as well. Offering us the highest current yield of all the stocks mentioned at 2.61% with a moderate payout ratio of 54.2% K can extend its dividend growth streak twelve years straight based on current cash flow. It’s ten year annualized dividend growth rate stands at 6.43%. Looking at basic valuation metrics K has a current PE of 48.6, well above its five year average of 23.6. In general, could many of the consumer staples be sporting higher PEs as a result of a flight to quality which has resulted in stock prices climbing dramatically within the last year?

 

Clearly, there are many solid “pantry” consumer staple dividend stocks to choose from that can offer “boring” but predictable and reliable dividends for years on end. While not the most exciting sector in terms of growth, all companies pay moderately yielding current dividends with an equally moderate payout ratio making them a safer choice for those looking for sustainable yield. See, sometimes looking for your next dividend stock can be as easy as looking in your own pantry. While I’m not a current shareholder in any of the names above, MKC is on my current watch list, (I decided to highlight consumer staples not in my current portfolio) they do offer a potential solid base for any long term dividend growth portfolio. Are any of these names in your own dividend growth portfolio? Please let me know below.

 

Disclosure: Long NONE

10 thoughts on “The Pantry Portfolio

    • Hi R2R,

      These consumer staples are always expensive relative to other stocks in the market. It seems like every dividend growth investor is waiting patiently for valuations and yields to become more attractive in the space. Like you, MKC is one of my favorite picks from the companies mentioned. Thank you for stopping by and commenting.

  1. I love the kitchen pantry concept. Consumer staple stocks are my favorite because they are usually entrenched in every middle class home. That is a very valuable demographic to cover and it helps strengthen your brand. With a valuable brand, comes endless opportunities. Remember what happened with Kraft last year? I’m sure that wouldn’t have happened if Kraft didn’t have strong brand recognition.

    The one downside of the company’s on your list is that they usually trade at a premium. For me, I would keep these companies in my back pocket for a sudden dip in the market or a flash sale. Would love to catch any one of them if they were trading at a discount.

    Thanks for taking the time to put this together!

    Bert
    Dividend Diplomats recently posted…Banking Without BranchesMy Profile

    • Hi DD,

      I think there is good reason these stocks rarely go on sale. They are just that resilient during tough economic times. As you mentioned with Kraft and the other names in this post, when a company controls several brands that are worth hundreds of millions or a billion or more on its own you control a valuable brand that comes with “endless opportunities.” That type of brand recognition and loyalty always comes with a premium attached. Like you, I’m waiting patiently to grow my consumer staples even more. Those dips are bound to come sooner or later. Thank you for stopping by and commenting.

    • Hi TCF,

      Many of the high quality consumer staples offer relatively low yields. That’s just the nature of a defensive sector. I know many in the DGI community like to go after higher yielding REITs, MLPs and the like but for my dollars I’d rather invest in lower yielding safer dividends than in ones that may be cut. As always, I appreciate your comment.

    • Hi ARB,

      Right you are! The bathroom, kitchen, laundry room and more can provide some great consumer staple dividend stocks to potentially invest your money. I always say that finding great dividend stocks can be as close as looking around your own home. Thank you for sharing your thoughts.

    • Hi DFG,

      Sticking with the staples is always a good idea long term. There are just certain things that people will always need no matter the economic environment. Like you, I’d also like to restock my pantry but will wait for values and yields to look a little more enticing. As always, I appreciate your comment.

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