Which dividend stocks will beat the market in 2013? The answer will shock you…
Over the years, the stock market brings its bubbles and they eventually burst. The banking industry was rocking for several years going right along side the oil industry. REITs offered and still offer great dividend payouts year after year. But do you know which sector will outperform the stock market this year?
We could expect to see resources bounce back based on growth numbers from emerging markets... We could think that the enormous amount of liquidity lying in techno stock bank accounts should be enough to push them through the roof... We can think that financials can break barriers and bring dividends higher for another year…
If you think that one of these three sector is the place to be in 2013, you're wrong. Here's my hint: it's a very boring sector…
The Heinz Effect
Among all investing sectors, I've picked the food sector to be the most prolific in 2013. Food…Seriously? a consumer sub-sector that grows steadily by a few percent annually? How could such a boring and slow growth sub-sector such as food products get the attention from investors to the point of generating its own investing bubble?
Believe it or not, it's already starting. Warren Buffett saw it before anybody else and spent $23B to buy Heinz (HNZ). As of Feb 1st, Heinz was up by 25.57% since the beginning of the year. Following Heinz, there are a few other dividend stocks that soared:
- Roundy's (RNDY) + 34.82%
- Safeway (SWY) + 31.90%
- Flowers Food (FLO) + 22.26%
- Ingles Markets (IMKTA) + 19.17%
- Campbell Soup (CPB) +17.97%
- ConAgra Foods (CAG) + 16.27%
- General Mills (GIS) + 14.42%
- The Kroger (KR) +13.49%
- The J. M. Smucker Company (SJM) +11.63%
- Pepsi (PEP) +10.96%
That's a total of 11 stocks beating both the market and most dividend indexes and they are all related to the food industry. You have groceries, processed & packaged food and beverage distributors. It's quite interesting to see that they are all related to nutrition, isn't it?
Why Food is So Interesting as an Investment
For the past ten years, we can't say that the food industry was the fastest growing sector. It's a good and reliable sector with strong dividends but you are definitely not thinking "major growth" when you think about a grocery store, right? So what is going on? Why has food become Wall Street's favorite pet all of a sudden?
My theory is based on sustainability. Several companies in the food sector share the same characteristics:
- They are constantly growing
- Their dividend is following the trend
- Their dividend payout ratio is reasonable
- They are diversified both in terms of products and geography
After 2008, we have seen a growing interest in dividend stocks. They have been popular for a while now but after we got our portfolio shake-up, dividend stocks became so interesting that we even started to think about a dividend bubble. Now that we don't have anything paying a good interest rate, dividend stocks have become the new bonds. Based on that theory, investors value are paying higher prices for solid companies showing the ability to growth their dividends over time. Instead of starving from a 1% interest rate bond, investors are looking for 3%+ dividend stocks increasing their payouts each year.
It's a safe bet to think that food related companies will continue to grow their sales in a stable manner and that their dividend will follow. After all, our global population is continuously growing and the very first thing we do with our pay check is go to the grocery store. Now that Buffett has shown the world the importance of food with his transaction, you can expect other companies to continue their growth this year. It may be not too late for some great stocks in this industry…
It's very hard to say if the small list of 11 stocks I've put together will continue to skyrocket this year. Out of this short list, 4 stocks (HNZ, Campbell Soup Company, Safeway, and General Mills) were part of my Best 2013 Dividend Stocks Book. One thing is for sure, HNZ won't go any higher now so that leaves 10 stocks to bet on.
Is it a good thing to buy a stock that has already gone up by 10%, 20% and even 30% in two months? I must admit that I would be tempted to cash out my profit with the first 4 stocks on that list . However, there are some interesting stocks that were not part of the double digit growth so far this year but still show interesting potential:
- McDonald's (MCD) +8.72%
- Kellogg (K) +8.33%
- Kraft Food (KRFT) +6.82%
- Coca-Cola (KO) +6.75%
- Lancaster Colony Corporation (LANC) +5.71%
- Weis Markets (WMK) +4.57%
If you were to pick one food stock, which one would it be? You already know my taste for MCD and KO .
Disclosure: I own shares of KO