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Summary

  • Campbell has an above average dividend yield.
  • The company controls nearly 60% of the US retail soup market.
  • Campbell's has a long history of rewarding shareholders.
  • The company's 3rd quarter results were disappointing.
  • Shareholders of Campbell's can expect modest growth going forward.

Campbell Soup Company (NYSE:CPB) is a global manufacturer and marketer of high-quality foods and simple meals, including soup, baked snacks, and healthy beverages. Founded in 1869, the company has a portfolio of market-leading brands like Campbell's, Pepperidge Farm, Arnott's, and V8.

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Source: Campbell's Investor Relations

Current Events - 3rd Quarter Results

Campbell's 3rd quarter results were somewhat disappointing. The company has grown organic revenues 1% versus the year ago period. The company expects net sales growth of 3% for fiscal 2014, revised down from 4% to 5%.

Campbell's divides its operations into 5 divisions:

  • U.S. Simple Meals (34% of revenue)
  • Global Baking & Snacking (29% of revenue)
  • Bolthouse & Food Services (18% of revenue)
  • U.S. Beverages (10% of revenue)
  • International Simple Meals & Beverages (9% of revenue)

The company's U.S. Beverage division and international division performed poorly, with organic sales down 4% and 7%, respectively. The silver lining for Campbell's is these are the company's two smallest divisions, making up less than 20% of revenues cumulatively.

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Source: Campbell's 3rd Quarter Presentation

US Soup Dominance & Strong Broth Sales

Campbell's bright spot in the 3rd quarter is its strong broth sales. Broth sales are up 11% year-to-date. Campbell's condensed and ready-to-serve soup's sales are down 2% and 4% year-to-date, respectively. The company is still the dominant player in the U.S. wet soup retail industry with nearly 60% of market share.

Campbell has lost market share in the US soup industry over the last 12 months. The company is down 0.3 percentage points, while other soup brands collectively gained 0.4 percentage points of market share.

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Source: Campbell's 3rd Quarter Presentation

Shareholder Return

Shareholders of Campbell can expect a return of 6.75% to 8.75% from dividends (2.75%), share repurchases (1%), and organic growth (3% to 5%). The company has a long history of rewarding shareholders, with constant or increasing dividend payments for 34 consecutive years.

Valuation

Campbell appears to be fairly valued based on its P/E ratio of 21.54 compared to its peers.

Ticker

Company

P/E

GIS

General Mills, Inc.

18.81

K

Kellogg Company

12.70

GMCR

Green Mountain Coffee Roasters Inc.

35.48

MJN

Mead Johnson Nutrition Company

28.06

CPB

Campbell Soup Co.

21.54

CAG

ConAgra Foods, Inc.

16.44

SJM

The J. M. Smucker Company

19.84

MKC

McCormick & Co. Inc.

24.00

Median

20.69

Source: Finviz

The company trades for a slightly higher valuation than the overall stock market. The S&P500 has a current dividend yield of 19.69, versus 21.54 for Campbell.

Consecutive Years of Dividend Increases

Campbell has paid constant or increasing dividends since 1980 without a reduction. The company's ability to continuously raise its dividend payments shows it has a strong competitive advantage in the soup industry.

Why it matters: The Dividend Aristocrats (stocks with 25-plus years of rising dividends) have outperformed the S&P 500 over the last 10 years by 2.88 percentage points per year.
Source: S&P 500 Dividend Aristocrats Factsheet, February 28 2014, page 2

Dividend Yield

Campbell's current dividend yield of 2.73% is the 49th highest out of 128 businesses with 25+ years of dividend payments without a reduction.

Why it Matters: Stocks with higher dividend yields have historically outperformed stocks with lower dividend yields. The highest-yielding quintile of stocks outperformed the lowest-yielding quintile by 1.76 percentage points per year from 1928 to 2013.
Source: Dividends: A Review of Historical Returns

Payout Ratio

Campbell's payout ratio of 73%is the 83rd lowest out of 128 businesses with 25+ years of dividend payments without a reduction. The company's fairly high payout ratio means Campbell will only be able to grow dividends in line with overall company growth going forward.

Why it Matters: High-yield, low-payout ratio stocks outperformed high-yield, high-payout ratio stocks by 8.2 percentage points per year from 1990 to 2006.
Source: High Yield, Low Payout by Barefoot, Patel, & Yao, page 3

Long-Term Growth Rate

Campbell has managed to compound its revenue per share at 4.23% over the last decade. The company has the 70th highest revenue per share growth rate out of 128 businesses with 25+ years of dividend payments without a reduction.

Why it Matters: Growing dividend stocks have outperformed stocks with unchanging dividends by 2.4 percentage points per year from 1972 to 2013.
Source: Rising Dividends Fund, Oppenheimer, page 4

Long-Term Volatility

Campbell's long-term standard deviation of only 18.56% compares favorably to other stocks with a long history of dividend payments. The company has the 9th lowest standard deviation out of 128 businesses with 25+ years of dividend payments without a reduction.

Why it Matters: The S&P Low Volatility index outperformed the S&P 500 by 2 percentage points per year for the 20-year period ending September 30th, 2011.
Source: Low & Slow Could Win the Race, page 3

Conclusion

Campbell's long history of dividend payments stems from its market dominance of the retail soup industry. The company has a fairly high dividend yield, and low volatility which makes it suitable for risk averse investors looking for income.

The company is the 29th highest ranked stock out of 128 based on the 8 Rules of Dividend Investing. The company has a fairly low revenue per share growth rate coupled with a high payout ratio. Campbell is unlikely to raise its dividend payments as quickly as many other dividend growth stocks over the next several years.

Overall, Campbell's strong consumer brands in slow changing industries make the business a fairly low risk investment with above average dividend payments but slow growth.

Source: Campbell Soup Current Events