For each S&P 500 industry sector, I will be taking a look at available companies to help determine the best stocks for income investors.
In determining the best stocks per industry, I will be examining both the dividend growth and dividend yields of the stocks.
Out of this group of Packaged Foods & Meats stocks, I feel that General Mills and Kellogg are the two best long-term options for income investors.
In this series of articles, I will be identifying which S&P 500 stocks for various S&P industries are best suitable for income investors, based on dividend growth and yield. For Part 21, I will be taking a look at Packaged Foods & Meats stocks. These stocks include:
- General Mills (NYSE:GIS)
- Hormel Foods (NYSE:HRL)
- Kellogg (NYSE:K)
- Keurig Green Mountain (NASDAQ:GMCR)
- Kraft Foods Group (KRFT)
- McCormick & Co. (NYSE:MKC)
- Mead Johnson Nutrition (NYSE:MJN)
- Mondelez International (NASDAQ:MDLZ)
- JM Smucker (NYSE:SJM)
- Hershey (NYSE:HSY)
- Tyson Foods (NYSE:TSN)
When ranking the dividend paying stocks by yield, the order is as follows:
- Kraft Foods Group - 3.49%
- General Mills - 2.96%
- Kellogg - 2.68%
- JM Smucker - 2.19%
- McCormick & Co. - 2.03%
- Hershey - 1.98%
- Mead Johnson Nutrition - 1.69%
- Hormel Foods - 1.61%
- Mondelez International - 1.46%
- Keurig Green Mountain - 0.87%
- Tyson Foods - 0.79%
When ranking them by dividend growth over the past five years, the order is as follows:
- Hormel Foods - 110.50%
- Mead Johnson Nutrition - 87.50%
- Tyson Foods - 87.50%
- General Mills - 74.47%
- JM Smucker - 65.71%
- Hershey - 63.03%
- McCormick & Co. - 54.17%
- Kellogg - 22.67%
- Kraft Foods Group - 5.00% (only since late 2012, because of spinoff)
- Keurig Green Mountain - 0%
- Mondelez International - (51.70%)
When looking at dividend yield, Kraft Foods Group, General Mills, and Kellogg pay a higher yield compared to the remaining stocks. Looking at dividend growth, I don't think any of the low-yielding stocks have displayed growth significant enough to overcome the low yields.
Kraft Foods Group is a bit different as it was a spin-off in late 2012, so there is not a lot of dividend information available yet, other than its high yield (compared to the other stocks) and its increase from $0.50 to $0.525 last year. Because of this, when looking at the top yielding stocks, I will be looking at more recent information than I normally do.
Based on revenue, you can see that General Mills and Kellogg have recently performed almost identically, while Kraft Foods has struggled a bit.
In terms of earnings, Kellogg has fared the best recently, while General Mills has seen slow growth.
Each company has a stable payout ratio. General Mills has the highest at 55%, while Kellogg has the lowest at 35%.
In terms of valuation, Kraft Foods and Kellogg are similarly-priced based on trailing PE, while General Mills appears considerably more expensive.
When looking at forward PE, Kellogg remains the more attractively priced stock out of the three.
When looking at long-term opportunities in dividend investing, I like to gauge a company's long-term track record of dividend distributions. Because that is not available with Kraft Foods Group, along with the fact that the company has seen recent declines in revenue, I don't find the company as suitable investment for long-term income investors. I believe it is a wonderful contender to add to a watch list, but I personally wouldn't invest in the company for its dividend quite yet.
I believe that Kellogg and General Mills make almost a perfect combination for long-term income investors. While General Mills currently offers the higher yield, you can see from the chart below that the two stocks have historically gone back and forth in this area.
While General Mills has seen the higher dividend growth, Kellogg has seen better earnings growth and is currently the more attractively priced stock. Based on the chart below, you can see that both companies have performed nearly identically over the past several decades, and that both have significantly outperformed the overall S&P 500.
I feel that both of these stocks will continue to outperform and will offer long-term rewards to investors in both dividend growth and price appreciation. As always, I suggest individual investors perform their own research before making any investment decisions.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.