McCormick & Company (MKC), Incorporated, a specialty food company, engages in the manufacture, marketing, and distribution of flavor products and other specialty food products to the food industry worldwide. It operates in two segments, Consumer and Industrial. The company, which has raised dividends for 23 consecutive years, is a member of the Mergent’s dividend achievers index. Back in November McCormick & Company increased its quarterly dividend by 8.30% to 26 cents per share. Since 1999 this dividend growth stock has delivered an average total return of 10.70% annually.
The company has managed to deliver a 11.70% average annual increase in its EPS between 1999 and 2008. Analysts expect McCormick & Company to earn $2.33 share next year, followed by an increase to $2.51/share in the year after that. The company is in the middle of a cost restructuring program, where annual savings have reached almost 56 million in 2008. In addition to that the company is trying to grow through acquisitions, which add to its diverse portfolio of consumer and industrial brands.
Although the Return on Equity is high at 23.90%, it is below its highs in the early 2000s. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.
The annual dividend payment has increased by an average of 11.10% annually since 1999, which is commensurate with the growth in EPS. An 11 % growth in dividends translates into the dividend payment doubling every six and a half years. If we look at historical data, going as far back as 1990, McCormick & Company has actually managed to double its dividend payment every six years on average.
The dividend payout ratio has consistently remained below 50% over the past decade. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
Currently the McCormick & Company is attractively valued at 17.8 times earnings, yields 2.90% and has an adequately covered distribution payment. I would look to enter McCormick & Company (MKC) on dips below $34.