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Large Cap Consumer Stables - Without Any Retail Components 2/17/2017

I had a "the sky is falling" moment after seeing the CAG dividend cut - which is not a 'sum of the parts' cut. Thanks to the first comment, I now know CAG spun off Lamb Wesson. Shareholders of CAG will receive one share of LW (target dividend of $0.75/year) for every three shares of CAG. Thus for 2017, existing shareholders will receive $.25/year more in spun off LG shares and $.20/year less from their CAGR shares.

The original message (which still has merit due to comment on KO and PG):

The message in the numbers is something new - "Caveat emptor", which is Latin for "Let the buyer beware". In December, CAG cut its dividend - and its price did not fall through the floor. Investors in this sector expect dividend security. There is now a crack in that expectation.

The case can be made that CAG is unique. 2017 earnings are projected at $1.70 compared to 2016's $2.08. But the dividend/EPS ratios for KO and PG are getting really ugly. The numbers consistently make the case that earnings growth does not come from some growth fairy - it comes from earnings reinvestment. Cut that reinvestment, and you cut forward growth. Both KO and PG have tried to maintain decent dividend growth when the underlying earnings failed to support that pace of dividend growth.

Will KO and PG cut the dividend? Probably not. But they have a "lack of growth" problem that are failing to address. As a result, they should probably be priced as if a cut had some potential of happening. Now is the time for you to right size your holding in these two. And the right size is probably zero. I have owned PG for years - and have been downsizing. I am pondering a phrase inspired by the rock band Europe - Is it time for the "final downsize"?

Large and Mid-Cap Consumer Staples 02/17/17

The Q1-17 dividend is used for yield calculations. The second Dividend/EPS ratio has the 2018 EPS projection as the denominator. The change in the target, EPS and target is the percentage change in the consensus 2017 projection that has happened since the beginning of 2017. "Div 1 yr" measures the change in the dividend since Q1-16. "Div 5 yr" measures the average change in the dividend since Q1-12. LANC paid a special dividend of $5.00 in Dec of 2015 - special dividends are not included in my stats. SAFM has paid large and growing special dividends - not included in this data - in 2014, 2015 and 2016. On 12/08/2016 Conagra cut its Q1-17 dividend!

    12-31-16 02-17 Div Current Div/ Div/ Percent Change
Company Price Price /Quarter Yield EPS17 EPS18 Price Pr+Div EPS17 EPS18 Target Div 1yr Div 5yr
Archer-Daniels (NYSE:ADM) 45.65 44.69 0.320 2.86 45% 42% -2.10 -2.10 -2.39 12.82 -3.05 6.67 16.57
Campbell (NYSE:CPB) 60.47 58.48 0.350 2.39 45% 43% -3.29 -3.29 0.00 0.00 2.52 12.18 4.14
Coke (NYSE:KO) 41.46 41.23 0.350 3.40 75% 72% -0.55 -0.55 -5.56 -7.14 -4.17 0.00 7.45
ConAgra (NYSE:CAG) 39.55 39.61 0.200 2.02 47% 43% 0.15 0.15 0.59 0.00 -2.61 -20.00 -3.33
Colgate (NYSE:CL) 65.44 71.98 0.390 2.17 54% 49% 9.99 9.99 -3.64 -5.36 -6.22 2.63 6.90
Clorox (NYSE:CLX) 120.02 133.71 0.800 2.39 60% 56% 11.41 11.41 0.00 0.88 2.66 3.90 6.67
DrP/Snapple (NYSE:DPS) 90.67 93.98 0.580 2.47 51% 45% 3.65 4.29 -3.58 -0.97 1.54 9.43 14.12
Flowers (NYSE:FLO) 19.97 19.57 0.160 3.27 71% 62% -2.00 -2.00 -5.26 -1.90 167.34 10.34 12.00
General Mills (NYSE:GIS) 61.77 59.23 0.460 3.11 60% 55% -4.11 -4.11 -0.32 -0.30 -0.33 4.55 10.16
Hershey (NYSE:HSY) 103.43 107.25 0.618 2.30 52% 48% 3.69 3.69 3.23 1.38 3.15 6.00 12.53
Hormel (NYSE:HRL) 34.81 37.26 0.170 1.83 40% 39% 7.04 7.04 -2.84 3.53 0.33 17.24 25.33
Ingredion (NYSE:INGR) 124.96 120.79 0.500 1.66 26% 25% -3.34 -2.94 0.80 -2.64 -5.68 11.11 30.00
Kellogg (NYSE:K) 73.71 72.90 0.520 2.85 53% 48% -1.10 -1.10 -1.01 -0.69 1.86 4.00 4.19
Kimberly-Clark (NYSE:KMB) 114.12 131.93 0.970 2.94 62% 57% 15.61 16.46 -0.47 -0.29 1.15 5.43 6.22
Lancaster (NASDAQ:LANC) 141.39 132.65 0.550 1.66 45% 43% -6.18 -6.18 1.25 1.00 3.58 10.00 10.56
McCormick (NYSE:MKC) 93.33 97.59 0.470 1.93 46% 42% 4.56 5.07 -0.73 -0.22 -2.64 9.30 10.32
Pepsi (NYSE:PEP) 104.63 108.15 0.752 2.78 59% 53% 3.36 3.36 -0.97 0.00 -1.56 7.12 9.22
Procter&Gamble (NYSE:PG) 84.08 91.05 0.670 2.94 70% 65% 8.29 8.29 -0.26 -0.72 -0.21 1.07 5.52
SandersonFarms (NASDAQ:SAFM) 94.24 95.03 0.240 1.01 11% 12% 0.84 1.09 -0.47 3.58 -4.28 9.09 8.24
JM Smucker (NYSE:SJM) 128.06 135.95 0.750 2.21 39% 37% 6.16 6.16 -0.13 -0.25 -0.17 11.94 11.25
Tyson Foods (NYSE:TSN) 61.68 65.26 0.225 1.38 18% 18% 5.80 5.80 3.94 0.60 -0.24 50.00 92.50
Average         2.36 49% 45% 2.76 2.88 -0.85   7.28 8.19 14.31
The SPY or S&P 500 EFT is 5.17% year to date. - and with unreinvested dividends is 5.17% year to date.
The KXI or Consumer Staples ETF is 5.64% year to date - and with unreinvested dividends is 5.64%.
The RHS or Guggenheim S&P 500 Eq Wt Cons Staple ETF is 4.95% year to date - and with unreinvested dividends is 4.95%.
With the 10 Treasury at 2.4% and the sector average yield on the Q4 dividend at 2.36% - the spread is -4 basis points.
* The change in the dividend is for the last twelve months and not year to date.

Price/Earnings Ratios 02-17
The 2019 Projections are from NASDAQ - except for ADM - which is home made.

  EPS / Share % EPS Growth Price/EPS Current Fiscal Year Year
Co. 2014 2015 2016 2017 2018 2019 14-15 15-16 16-17 17-18 2016 2017 2018 High Low Range End
ADM 3.20 2.60 2.16 2.86 3.08 3.15 -18.75 -16.92 32.41 7.69 20.69 15.63 14.51 3.00 2.74 12.04% Dec
CPB 2.53 2.46 2.94 3.08 3.23 3.44 -2.77 19.51 4.76 4.87 19.89 18.99 18.11 3.15 2.94 7.14% July
KO 2.04 2.00 1.91 1.87 1.95 2.05 -1.96 -4.50 -2.09 4.28 21.59 22.05 21.14 1.90 1.84 3.14% Dec
CAG 2.17 2.18 2.08 1.70 1.87 2.07 0.46 -4.59 -18.27 10.00 19.04 23.30 21.18 1.75 1.61 6.73% May
CL 2.93 2.81 2.81 2.91 3.18 3.49 -4.10 0.00 3.56 9.28 25.62 24.74 22.64 2.97 2.87 3.56% Dec
CLX 4.26 4.57 4.96 5.33 5.73 6.03 7.28 8.53 7.46 7.50 26.96 25.09 23.34 5.36 5.28 1.61% Dec
DPS 3.65 4.02 4.39 4.58 5.13 5.51 10.14 9.20 4.33 12.01 21.41 20.52 18.32 4.73 4.47 5.92% Dec
FLO 0.88 0.92 0.91 0.90 1.03 1.20 4.55 -1.09 -1.10 14.44 21.51 21.74 19.00 0.98 0.85 14.29% Dec
GIS 2.82 2.86 2.92 3.08 3.35 3.53 1.42 2.10 5.48 8.77 20.28 19.23 17.68 3.12 3.00 4.11% May
HSY 3.98 4.12 4.41 4.79 5.13 5.46 3.52 7.04 8.62 7.10 24.32 22.39 20.91 4.95 4.74 4.76% Dec
HRL 1.11 1.32 1.64 1.71 1.76 1.73 18.92 24.24 4.27 2.92 22.72 21.79 21.17 1.73 1.68 3.05% Dec
INGR 5.20 5.88 7.86 7.59 8.10 9.26 13.08 33.67 -3.44 6.72 15.37 15.91 14.91 7.68 7.49 2.42% Oct
K 3.81 3.53 3.74 3.94 4.34 4.89 -7.35 5.95 5.35 10.15 19.49 18.50 16.80 4.00 3.83 4.55% Dec
KMB 5.51 5.76 6.03 6.30 6.76 7.26 4.54 4.69 4.48 7.30 21.88 20.94 19.52 6.45 6.25 3.32% Dec
LANC 3.69 3.74 4.44 4.86 5.06 0.00 1.36 18.72 9.46 4.12 29.88 27.29 26.22 4.95 4.78 3.83% June
MKC 3.37 3.48 3.78 4.08 4.45 4.76 3.26 8.62 7.94 9.07 25.82 23.92 21.93 4.12 4.05 1.85% Nov
PEP 4.63 4.57 4.85 5.13 5.68 6.07 -1.30 6.13 5.77 10.72 22.30 21.08 19.04 5.21 5.09 2.47% Dec
PG 4.09 3.76 3.67 3.85 4.14 4.43 -8.07 -2.39 4.90 7.53 24.81 23.65 21.99 3.89 3.81 2.18% June
SAFM 10.80 9.52 8.37 8.51 8.10 5.53 -11.85 -12.08 1.67 -4.82 11.35 11.17 11.73 12.05 6.75 63.32% Oct
SJM 5.64 5.38 6.00 7.69 8.08 8.48 -4.61 11.52 28.17 5.07 22.66 17.68 16.83 7.75 7.62 2.17% Apr
TSN 2.94 3.15 4.39 5.01 5.00 5.10 7.14 39.37 14.12 -0.20 14.87 13.03 13.05 5.10 4.92 4.10% Sep
Average             7.51 6.09 6.88 21.54 20.41 19.05      

Disclosure: I am/we are long CL, GIS, HRL, HSY, INGR, PEP, PG, SJM.