As you all know, I can’t get enough of high-quality dividend growth stocks. The dividend growth investing strategy completely changed my life. In fact, it allowed me to go from below broke at age 27 to financially free at 33.
By the way, I explain exactly how I achieved financial freedom in just six years in my Early Retirement Blueprint. If you’re interested, you can download a free copy of my Early Retirement Blueprint here.
Dividend growth investing is all about buying and holding shares in high-quality companies that pay reliable, rising dividends. They’re able to pay these reliable, rising dividends because they’re producing reliable, rising profits.
And how are they able to do that? By providing the world with the products and/or services it demands. Food is a perfect example of this. We’ve all gotta eat.
Well, there are a number of companies out there providing the world with food. In doing so, they produce a lot of growing profit and pay out big, growing dividends.
Today, I want to tell you about three dividend growth food stocks to take a look at after they’ve recently pulled back. Ready? Let’s dig in.
Dividend Growth Food Stock #1: Hormel Foods (HRL)
Hormel is a global branded food company with a market cap of $23 billion.
With brands like Skippy, SPAM, Planters, and eponymous Hormel, this is a broad food company involved in providing everything from meats to peanut butter. I love a business model like this because it provides products that are both necessary and easy to understand. You know what else is easy to understand? This company’s dividend royalty.
Hormel has increased its dividend for 54 consecutive years.
This is a Dividend Aristocrat. Not only that, it’s a Dividend King, which is a vaunted status reserved for stocks with 50 or more consecutive years of dividend increases. Hormel takes its dividend very seriously, which I appreciate. The yield isn’t super high, at 2.3%. But it’s all about safety and growth here. The five-year DGR is 13.2%, and the payout ratio, at 62%, shows no problems whatsoever with the dividend.
Hormel’s stock has seriously corrected and is now down 20% from its 52-week high.
This was a $52 stock not long ago. It’s now at $42/share. With a P/E ratio of 26.7, the stock still doesn’t appear to be cheap. However, that’s also because, even though this is a stable food business, its EPS is still not fully normalized right now. And keep in mind, this is usually a stock that commands a premium multiple – the five-year average P/E ratio is 24.2, and that’s using stronger earnings. The current yield is 50 basis points higher than its five-year average, so this is, in some ways, an advantageous time to accumulate Hormel shares, relative to opportunities in the recent past.
Dividend Growth Food Stock #2: Mondelez International (MDLZ)
Mondelez is a multinational confectionery, beverage, and snack food company with a market cap of $85 billion.
One of the biggest and best food companies in the world, Mondelez has world-class brands that include Oreo, Ritz, and Cadbury. If you think that human beings will continue to enjoy snacking for years to come, Mondelez is kind of a no-brainer long-term investment. And helping you to stay patient for the long term is their safe, growing dividend.
Mondelez has increased its dividend for 10 consecutive years.
While that might seem short, it’s only because the company was spun off from former parent Kraft Foods Group Inc. in 2012. So their dividend growth track record is actually as long as it possibly could be. The five-year DGR is 12.8%, which is paired with the market-beating yield of 2.3%. And the dividend is protected by a low payout ratio of 46.4%. This dividend checks all the boxes. Market-beating yield, inflation-beating growth, and a high level of safety.
The stock has recently pulled back and looks appealing right now.
I wouldn’t say that this stock is super cheap or anything, but it’s recently pulled back a bit and the valuation is now pretty reasonable. Most basic valuation metrics are very close to their respective recent historical averages. In some cases, they’re lower. The P/E ratio of 20.2 is quite a bit lower than its five-year average of 24.5. And the yield is 30 basis points higher than its five-year average. After the pullback, this stock could be worth snacking on.
Dividend Growth Food Stock #3: J.M. Smucker (SJM)
Smucker is a packaged foods company with a market cap of $17 billion.
Primarily known for their Jif peanut butters and Smucker’s jams, they’ve also branched out into pet foods and pet snacks, and now own brands in this space that include Meow Mix and Milk-Bone. In addition, they have heavy exposure to coffee through Folgers and Dunkin’ retail. To paraphrase one of their famous marketing lines: With a name like Smucker’s, it has to be a good dividend.
The company has increased its dividend for 24 consecutive years.
Inching up on Dividend Aristocrat status here. The stock yields a rather attractive 3.2%, which is more than twice as high as what the broader market offers. The five-year DGR of 6.3% isn’t as high as the other two names that I’m highlighting today, but you get that higher yield. And the payout ratio, at 55.6%, shows us a well-covered dividend that’s positioned to continue growing for years to come.
The stock has corrected and is now down almost 15% from its recent high.
The 52-week high for the stock is a bit over $140/share. Shares are now trading hands for $123/each. That’s a nice correction that has made the valuation a lot more reasonable. Every basic valuation metric is either in line with, or lower than, its respective recent historical average. The P/E ratio of 17.3 is a bit off of its five-year average of 18. And the 3.2% yield is 30 basis points higher than its five-year average. Again, not a super cheap stock. But it’s a very solid food business with 24 consecutive years of dividend increases, a yield that’s more than twice as high as the broader market’s yield, and inflation-beating dividend growth. And the valuation looks sensible right now. Take a look at this name if you haven’t already.
— Jason Fieber
P.S. If you’d like access to my entire six-figure dividend growth stock portfolio, as well as stock trades I make with my own money, I’ve made all of that available exclusively through Patreon.
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