4 Dividend Stocks That You Will Eat Alive
Cody is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
I like to own what I buy, but I love to own what other people buy. What I mean is I love to own stock in companies whose products are purchased every day by the average household. In good times or bad, people will always buy items from these four companies.
These companies aren’t in the exciting 100M dash on Olympic prime-time television. These are the 10,000M runs that are slow and take a commercial break at the 7 minute mark. It is very risky to invest in the exciting and fast moving stocks. Look at how many people were excited about Facebook going public. How many of the people that bought Facebook’s IPO have made money? The lesson there was to not buy solely based on company popularity.
We were all burnt very badly by the recession. It is still a bitter memory when I bought my first stock in August 2008 and watched it drop from $27 per share to $5 per share in 6 months (bonus points if you can guess which stock it was). I want to have safeguards against taking such a big hit the next time we cycle into a recession or even a little bump like this past May-July. I believe these companies make recession proof items. When times are tough, people will cut expenses by eating at home and so many of the products these four companies sell are food for home consumption.
General Mills, Inc. (NYSE: GIS) – There isn’t a house, apartment, or condo in America that doesn’t have a General Mills product in it. It is the Cereal King and also makes a ton of different breakfast items with their brands Pillsbury and Yoplait. One avenue of expansion is the global sector. GIS recently acquired Yoki Alimentos S.A.: a Brazilian food company. General Mills has room to expand into the global market increasing their international business. I bought GIS this past April, and I believe long term it will grow very well. I have confidence in Ken Powell (CEO since Sept of 2007) to lead GIS into a new era of new product development and overseas expansion. It has a steady dividend of 3.4%, which to me says that they want to reward their shareholders by giving some cash back, but I’ve chosen to put my dividend right back in the company.
Kellogg Company (NYSE: K) – Since the Cereal King title is already taken, Kellogg is the Cereal Emperor. Kellogg also makes Poptarts, Eggo Waffles, and Nutri-Grain Bars. Kellogg recently purchased Pringles from Proctor & Gamble, which is a huge brand name addition to the snack line. K has taken a beating this past year, but they are very well-positioned for the future. CEO John Bryant is listening (so speak up) to try and find out what consumers are really after. There has been a large shift in consumers desiring healthier products for their families. To discover the different changes that Kellogg is making I suggest you read this article. Not only does K shell out a 3.4% dividend, but they have been increasing their dividend every year since 2005 in spite of the recession and high commodity prices. Mr. Bryant is doing a good job of entering K into the healthy snack market, which in my opinion could use more options.
H. J. Heinz Company (NYSE: HNZ) - Your first thought was about ketchup right? Well that was my first thought too when I first looked into Heinz about 3 years ago. However HNZ is much, much bigger than just condiments. They have worldwide brands in frozen food, soups, pasta meals, infant food, and more. I bet there are a lot of food products in the grocery store that you didn’t know were Heinz. When you purchase HNZ, you are purchasing a global company with steady growth. I have owned HNZ since December of 2009, and I particularly enjoy owning it when the market is down. You see, HNZ does not move quickly. When the market is down 1%, HNZ will usually only go down .2%. Conversely, the same is true when the market goes up 1%. With a solid 3.7% dividend and slow steady growth, HNZ is an excellent asset to add to your portfolio.
Kraft Foods Inc (NASDAQGS: KFT) – If you gave me a room and said I could fill it with any one company’s snack line, it would be Kraft. It seriously would be a child’s dream snack house filled with Oreos, Chips Ahoy!, Kool-Aid, Capri Sun, Jell-O, and a long list of others. These brands are all over the world and kids (as well as adults) love them. Kraft is selling their “Back to Nature” brand to Brynwood Partners, which will help cut some costs and will give them some more capital. They will maintain a minority stake in the company and will have a presence on the board. Kraft has maintained a steady dividend of 2.8% since 2009 and I like how they are poised right now with their current product line. They are focusing on what they do best and that is always a desirable quality.
Staple stocks are the best purchases you can make in an unstable time. I’m not preaching that we are going to “double dip,” but with analysts on both sides of the fence, times are uncertain. With all of these stocks, I would encourage you to have your dividends reinvested into the stock. Morgan Housel wrote a very interesting article about growth when adjusting for dividends. Put your dividends back in and you will see the rewards down the road.
You might be of the opinion that we are digging our way out of the recession and investing in companies that hold their own in dark times would be foolish if prosperity is around the corner. Well you raise an excellent point. Believe it or not, locations other than households purchase the products that these companies make. Restaurants need condiments for the every table and often times throw out a half empty bottle. Hotels need cereal for their continental breakfasts. Gas stations make a large percent of their profits from selling snacks in their mini-marts.
So in good times and bad these companies are safe to buy. You might not be excited by safe, but you know who is? Your family. Your family is going to respect you and be comforted because the next time a big recession hits you are going to be ready. You won’t see your entire portfolio be dissolved if you have shares of these companies. Yes they will take a hit, but the race for prosperity needs safeguards, and these safeguards will guide you there.
CWTerrill owns shares of H.J. Heinz Company and General Mills. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend H.J. Heinz Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.