Three Great F&B Stocks for Income Investors

Anh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Food & beverage have been always an exciting sector to bet on. The majority of depressions didn’t seem to slow the industry down; after all, people still have to eat and drink on a daily basis. That is why I am quite interested in this sector. However, investors need to dig in deeper to find the decent F&B businesses, which are priced reasonably in the stock market. A great business should deliver a double-digit return, and it should have a history of paying consistent dividends over time.

In order to search for those opportunities, I have set four main criteria to select the stocks: (1) Food & Beverage Industry with operating history of more than a century, (2) Return on invested capital must greater than 15%, (3) Paying dividend continuously for the last 10 years, and (4) Its EV/EBIDTA should be lower than 15x.

Here are the only 3 results:

Hershey (NYSE: HSY) has a long operating history, as it was founded in 1894 by Milton Hershey. It is considered to be the leading chocolate and sugar confectionery producer in the world. The business is divided into three regional segments covering all continents in the world, with more than 80 brand names. Hershey sells its products to wholesalers, retailers, merchandisers, and convenience and department stores so that those customers can resell its products to the end users. The biggest customer is McLane, accounting for 22.3% of its total net sales in 2011. Interestingly, McLane is a primary distributor of Hershey into Wal-Mart Stores.

Trailing twelve months, its ROIC was 23.65%. In the last 10 years, Hershey has paid consistently increasing dividends to shareholders, from $0.63 per share in 2002 to $1.38 in 2011. The current dividend yield is 2.1%. Hershey is trading at $71.74 per share, with the total market capitalization of $16 billion. Its EV/EBITDA stays at 12.71x.

Campbell (NYSE: CPB) is famous for being a producer of high quality convenience food products. It also has a long history dated back to 1869. The business has around 11 operating segments based on geography and product types, including US Simple Meals, Global Baking and Snacking, International Simple Meals and Beverage, US Beverages, and North America Foodservice. Campbell has five main customers accounting for around 34% of the total revenue. The largest customer is Wal-Mart Stores, accounting for 17%-18% of total sales. The company has around 4,200 trademarks in 165 countries.

Campbell Soup has a history of delivering double-digit return to shareholders. Over the past 12 months, its ROIC was nearly 19.7%. It has also paid consistent dividends in the past 10 years. The dividend yield is 3.2%. It is trading at $36.64 per share, with the total market capitalization of $11.5 billion. The market is valuing CPB at 9.44x EV/EBITDA.

Hormel Foods (NYSE: HRL), which was founded in 1891, is involved in manufacturing meat and food products with five main segments: Grocery products, Refrigerated foods, Jennie-O Turkey Store, Special Foods and Others. In fiscal 2011, more than 55% of total revenue came from perishable meat, 19% was from poultry and 16.8% was from shelf-stable. Wal-Mart is the biggest customer, accounting for 12.5% - 13% of its revenue.

Trailing twelve months, Hormel Foods delivered a 16% return on invested capital. The firm has paid consistent and increasing dividends as well. It has increased its dividend from $0.20 per share to $0.51 per share in the period of 2002-2011. The current dividend yield is 1.9%. Hormel Foods is trading at $30.87 per share, with the total market capitalization of $8.12 billion. The market is valuing it at 9.31x EV/EBITDA.

Foolish Bottom Line

With a strong legacy of operating for more than a century, a consistently high return on invested capital, a growing dividend and a reasonable EV/EBITDA, all three food & beverage companies should be considered to be in the portfolios of income long-term investors.

 

 


hoangquocanh has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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