8 Of The Top Packaged Food Stocks Today Ranked

For income investors one important factor for the decision of which stock to buy is dividend safety.

During economic upturns most companies benefit from rising profits, but during economic downturns some companies are hit harder than others. Recession resilience therefore is an important data point long-term focused investors should look at.

Stocks from the consumer staples industry are among the most resilient companies when it comes to dealing with the impact of recessions, which is not surprising, as their products are bought by customers whether the economy is doing well or not. 

One sub-category of the consumer staples industry is the packaged food industry, which we will look at more closely in this article.

Packaged food stocks usually are not high-growth stocks, as demand for their products is not growing at an extraordinarily high pace. Through a combination of relatively high and secure dividends, some growth (through rising prices, international expansion or margin growth) and, in many cases, inexpensive valuations, they nevertheless have the potential to deliver attractive total returns.

In this article we will take a look at the 8 dividend stocks from the packaged food sector in our Sure Analysis Research Database that offer the highest expected returns over the coming five years.

Packaged Food Stock #8: Campbell Soup (CPB)

Campbell Soup is a branded convenience products company that sells soups, snacks, packaged fresh food, simple meals, etc. To bolster its healthy foods business Campbell Soup has recently acquired Snyder’s Lance, a $6.1 billion acquisition, which is relatively huge for Campbell Soup, which is valued at $10.4 billion.

Uncertainties about the outcome of this major acquisition as well as recent changes in Campbell Soup’s management have made investors wary of the stock, which explains why Campbell Soup’s share price declined by 38% over the last year.

CPB Sales

Source: Earnings Release

Campbell Soup grew its revenues by 15% during the most recent quarter, but the majority of the company’s growth was based on the acquisition of Snyder’s Lance, organic net sales were flat compared to the prior year’s quarter.

For the current fiscal year Campbell Soup forecasts earnings-per-share of $2.85, which would mean a small decrease from 2017’s level of $3.04. Going forward growth will likely be positive again, though, as synergies from the Snyder’s Lance takeover materialize and margins start to expand again.

The steep share price decline in Campbell Soup’s shares has made the price-to-earnings ratio drop to just 12.5, substantially less than the long-term average of 16. Uncertainties about the future and increases in Campbell Soup’s debt levels (the debt to assets ratio is ~90%) will likely mean that the price-to-earnings ratio will remain below 16 for the foreseeable future.

We forecast that price-to-earnings expansion (to a multiple of 15) will be a ~4% tailwind for total returns, in addition we forecast 2% annual earnings-per-share growth. Factoring in the dividend, which currently yields 3.9%, we get to a total return estimate of close to 10% annually over the coming five years.

Packaged Food Stock #7: Kraft-Heinz Company (KHC)

The Kraft-Heinz Company is one of the biggest packaged goods companies, valued at $73 billion this consumer goods giant sells condiments, cheese & dairy, frozen meals, etc. Kraft-Heinz was created in 2015, through a mergerthat was orchestrated by 3G Capital and investor legend Warren Buffett.

Kraft-Heinz has delivered positive earnings-per-share growth in the most recent quarter, but that was primarily due to the impact of lower taxes. Organic sales have declined slightly, although the company’s operating performance will likely improve throughout the remainder of the year.

KHC Outlook

Source: Earnings Release

Kraft-Heinz is not generating strong growth with its products in the US, but the growth outlook is better in international markets such as Latin America, the Asia-Pacific region and India: Kraft-Heinz’ market penetration is still relatively low in these regions, but the market potential is huge and steadily growing as incomes rise in key emerging markets, which allows consumers to choose higher-priced Western brands. Positive growth in international markets as well as further cost-cutting (which will lead to margin expansion, and which is where 3G Capital is one of the best), should allow for at least mid-single digits earnings-per-share growth over the coming years.

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Disclosure: Sure Dividend is published as an information service. It includes opinions as to buying, selling and holding various stocks and other securities.

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