This Yummy Defensive Stock Yields 2.45%

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The beauty of food products manufacturers and marketers is that the demand for their products is relatively stable. Good economy or bad economy, people need to eat, which brings companies like JM Smucker (NYSE: SJM) into the picture. The returns are steady, which appeal to the conservative investors. The shares of the company are up 61%, over a period of 5 years, and here are a few reasons to be bullish about it.

JM Smucker was founded back in 1897, and since then it has matured to become a $9.3 billion enterprise. The branded food products manufacturer and marketer has a huge global foot print, with its presence in 45 countries with nearly 3,500 employees. JM Smucker has a diversified product line, with Pillsbury and Dunkin Donuts in its basket. A list of the company’s brands can be seen here.

In the recent earnings release, the company reported better than expected EPS of $1.17, up from $1.00 in the same quarter last year. Net sales stood at $1.36 billion, also up from $1.182 billion in the same period last year.  A significant portion of JM Smucker’s revenues comes from the sale of its coffee, and the rising coffee prices in the previous year remained a cause of worry. However, prices of coffee beans have slid by more than 12% since the highs it created in the previous year, and analysts believe that coffee prices would consolidate at the current levels. Here is a price chart of coffee beans.

Adding to the delight of the investors, the management raised its dividend payout by 8%, and the yield now stands at 2.45%. The company’s payout ratio stands at 48%, which isn’t alarming, as its long term debt/equity ratio stands at a moderate 39%.

The company's most recent acquisitions include Café Bustelo, Folgers, and Douwe Egberts. Out of the three, Folgers alone accounts for nearly 40% of the company’s annual sales. To further boost the sales, management is looking to launch 50 new products by the end of 2012, and 80 new products by the end of 2013.

Additionally, JM Smucker acquired a minority stake in Guilin Seamild Biologic Technology Development, which allows JM Smucker to enter into the Chinese markets. Guilin Seamild is popular in China for its oatmeal products, and JM Smucker can now steadily start reaping the financial benefits of being present in markets of the world’s most populous country.

JM Smucker shares its market space with Con Agra (NYSE: CAG) and General Mills (NYSE: GIS).

Company

Forward P/E

Debt/Equity

Net Profit Margin

EPS growth expected next yr.

JM Smucker

15.08x

40%

8.04%

8.67%

Con Agra

12.82x

69%

4.4%

6.8%

General Mills

13.74x

129%

9.87%

8.61%

Out of the three competitors, General Mills has the highest net profit margin, along with the highest debt/equity levels. The three companies trade at similar forward P/E multiples, as well as EPS, JM Smucker is expected to grow at the fastest pace over the next year, marginally ahead of General Mills.

From the attached chart, we can see that JM Smucker has outperformed its peers in terms of stock returns over a period of 5 years.

SJM data by YCharts

The financial performance of the company is stellar, and management's plans to roll out new products in the market is looking aggressive. JM Smucker’s entry into the Chinese market could be a big game changer for the company, as it would now be catering to the world’s most populated country. Additionally, the company has repurchased $316 million worth of shares from the market during the current year, which highlights the amount of faith the board members have in the company’s future. Also, the stock has performed well over the past 5 years, and it is due to these reasons that JM Smucker has a solid Foolish Buy rating.


PiyushArora 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.If you have questions about this post or the Fool’s blog network, click here for information.

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