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.
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.
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.
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.
Campbell appears to be fairly valued based on its P/E ratio of 21.54 compared to its peers.
General Mills, Inc.
Green Mountain Coffee Roasters Inc.
Mead Johnson Nutrition Company
Campbell Soup Co.
ConAgra Foods, Inc.
The J. M. Smucker Company
McCormick & Co. Inc.
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
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
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
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
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.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.