Everyone Has to Eat: Consider These Food Stocks
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It’s an old adage, but it remains true: everyone has to eat. And even a simple phrase such as that has some value that can be applied to investing. Some of the best stocks over long periods of time are those that sell products people can’t easily live without. Food certainly qualifies as something we can’t do without, and as a result, the following is a list of well-run companies that are worthy of further consideration.
Sysco (NYSE: SYY) is a food distributor in the United States with an $18 billion market capitalization. Sysco has sales and service relationships with approximately 400,000 customers and operates from more than 180 locations throughout the United States, Canada and Ireland. Sysco registered a record $42 billion in sales in fiscal 2012, representing an increase of 7% versus 2011. In addition, Sysco earned a 15% return on invested capital last year. Sysco's solid operating performance is enhanced by its great financial position. The company has a current ratio of 1.76 times, indicating the company has more than enough current assets to satisfy its short-term liquidity needs. At the same time, the company holds a modest long-term debt to equity ratio of 57%, meaning that investors shouldn't be too concerned with the company's ability to pay its short and long-term bills. In addition, Sysco is one of the most shareholder-friendly stocks in existence. In November, Sysco announced it had increased its dividend for the 41st year in a row. At recent prices, the stock yields more than 3.5%. The stock is reasonably priced, with a trailing price-to-earnings ratio of 17 and a forward P/E of 14.
ConAgra Foods (NYSE: CAG) has a market value of $13 billion and many household brands, including Healthy Choice, Hebrew National, and Del Monte. ConAgra Foods’ consumer brands can be found in 97 percent of America’s households, and 28 of them are ranked first or second in their category. The company increased net sales by 8% in fiscal 2012. The company was founded all the way back in 1919 and has demonstrated a clear intention of rewarding shareholders. Last year, the company raised the dividend by 4% and yields 3% at recent prices. Like Sysco, ConAgra trades at a forward P/E of 14. In addition, ConAgra is conservatively capitalized. The company has a solid current ratio of 1.7 times. The company has shored up its cash position recently, more than quadrupling the amount of cash on its balance sheet between November and May of 2012.
Flowers Foods (NYSE: FLO) is a smaller rival, with a market capitalization slightly less than $4 billion. The company produces and markets bakery products in the United States. Interestingly, Flowers Foods has been involved in the bidding for the Hostess Brands products: Flowers Foods was picked as the lead bidder for six of Hostess' major bread brands, including Wonder. The company reported sales over its first three fiscal quarters rose more than 8 percent year over year. The stock also pays a solid dividend which was raised 6.7% last year and yields 2.3% at current prices. While Flowers Foods is a successful company, the stock appears fully valued with a trailing P/E near 30 and a forward P/E greater than 20 times.
The Bottom Line
A predictable business model that sells products to consumers regardless of the prevailing economic environment is a great way to earn reliable returns over time. Each of these companies has a long operating history with a demonstrated track record of rewarding shareholders. These three stocks offer compelling dividend yields that meet or beat the yield on the broader market and are worthy of further research for many dividend investors.
Robert Ciura has no position in any stocks mentioned. The Motley Fool recommends Flowers Foods and Sysco. 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!