3 Top Dividend Stocks to Consider as Cocoa Prices Pull Back

It's safe to say that chocolate holds a special place in people's hearts and cravings. Moreover, as emerging nations continue to flourish, chocolate consumption has surged dramatically over the years.

Earlier this year, a cocoa (CCU24) supply crunch triggered a steep price hike in futures. With chocolate companies forced to swallow higher costs or pass them on to customers, headlines started to crop up over the potentially prohibitive cost of our favorite treat.

However, in tackling the situation, many chocolate manufacturing companies have delayed their raw material purchases. Notably, many companies also hedge their raw material costs up to a year in advance, which means investors may be pricing in overly bearish expectations related to that second-quarter surge in cocoa prices.  In fact, with cocoa pulling back about 35% from those highs, now could be an opportune time to wager on the sweeter side of the stock market.

Looking ahead, projections show that sales of cocoa-based products could reach an annual total of $57 billion by the end of 2032, with an average yearly growth rate of roughly 5.8%. Plus, investing in the sector comes with dividends, another sweetener for chocolate stock companies. Let's discuss three chocolate companies that analysts believe are poised for long-term growth and double-digit upside.

#1. Nestle

Nestle (NSRGY) is a giant in the consumer packaged foods sphere, and is one of the top chocolate companies. The Swiss company sells a truckload of sweets under the Nestle banner and reigns supreme as the top player in its niche. Nestle's market dominance is remarkable, with a formidable stake accounting for over 15% of the culinary marketplace.

Valued at $277 billion by market capitalization, Nestle's shares have fallen more than 13% in the past year, lagging behind the S&P 500 Index's ($SPX)gain of 25.4%. Nestle shares are trading at an 18.9x forward earnings ratio, in line with the sector median.

Nestle reported a respectable increase in its revenue last year, marking a 4.7% upswing to $103.9 billion in 2023. Impressively, its organic growth rate reached a robust 9.3%. 

The food giant also achieved a noteworthy milestone as its underlying trading operating profit (UTOP) margin showed an uptick of 20 basis points, and an even more impressive gain of 40 basis points on a constant currency basis. The cherry on top came in earnings per share, which experienced a substantial increase of 23.7% to $4.75.

Nestle also reported a massive 42% surge in operating cash flow, reaching $17.7 billion in the 2023 fiscal year. This indicates that Nestle has effectively managed its operations and resources to generate more cash from its business activities. 

From a dividend standpoint, Nestle pays its investors a healthy annual dividend of $3.28 per share, yielding 3.10%.

In 2018, Nestle made a significant move by selling its confectionery and candy bar business, which included popular treats such as Baby Ruth, 100 Grand, and Crunch bars, to the privately held Ferrero Group for $2.8 billion in efforts to streamline its business. Nestle retained the KitKat brand, and still has Aero, Baci Perugina, Toll House, and more in its portfolio.

In May 2023, the company announced a substantial investment of  $1.9 billion earmarked for its chocolate business over the next five years. Simultaneously, Nestle is placing a strong emphasis on innovation. That includes developing new products, while also venturing into global markets.

Furthermore, Nestle's earnings and revenue are projected to increase by 6.6% and 3.5% annually, respectively. The company's EPS is anticipated to rise by 7.4% per year. In three years, the return on equity is expected to reach 35.2%. Additionally, Nestle hopes to grow its organic sales by 4% in 2024.

Analysts have assigned Nestle a consensus rating of "moderate buy" with a mean price target of $126. This indicates that the stock has a 19.8% upside potential from its current price.

#2. Hershey 

The U.S.-based chocolatier Hershey (HSY), valued at $37.8 billion, is known for its brands that include consumer favorites such as Reese's, Almond Joy, Heath, Milk Duds, York, and more.

With a robust presence in the confectionery and baking products sectors, Hershey's stock can be an attractive choice for investors seeking stability and potential growth. This diversified product portfolio satisfies consumers' cravings worldwide and provides a solid foundation for the company's stock performance. Over the past decade, Hershey's sales have surged, boasting nearly a 50% increase over this time frame. 

Hershey stock is up 35.5% in the last 5 years and 3.6% over the past six months. Currently, Hershey's shares are trading at a reasonable 18.9x forward earnings, on pace with the sector median.

In addition, Hershey has maintained consistent dividend growth over the past 15 years. The company pays an annualized dividend of $5.48 per share, which translates to a forward dividend yield of 2.81%, offering an enticing incentive for income-focused investors.

Hershey reported impressive financial figures for the first quarter of 2024, beating top- and bottom-line expectations. Revenue came in at $3.2 billion, and adjusted earnings per share at $3.07. Net income jumped by 128% from the prior quarter to reach $797 million. 

Perhaps most impressively, net cash flow improved to $118 million, reversing the year-ago outflow. This robust financial performance adds a compelling layer to Hershey's investment potential, making it a sweet choice for those seeking growth and income in their portfolio.

Overall, analysts have given Hershey stock a "hold" rating, with a mean price target of $208, indicating a 10.9% upside potential from its current price. Out of 22 analysts, 5 call it a "strong buy," 16 suggest a "hold," and 1 recommends a "strong sell."

#3. Mondelez

Mondelez (MDLZ) is a worldwide snacks company with a rich history in cocoa and confections. The company offers chocolates, biscuits, gum, candy, and more, with globally recognized brands like Cadbury and Toblerone in its portfolio. 

Valued at $91.7 billion by market cap, Mondelez stock has tumbled 6.8% over the last year due to market and supply chain fluctuations. The stock is now trading at a reasonable 18.9 times forward earnings, in line with its sector peers and at a discount to its historical averages.

Additionally, Mondelez offers a decent dividend to its investors. It currently yields 2.49%, based on its annualized dividend of $1.70 per share. The company has consistently increased dividends for a decade.

Last year, Mondelez reported revenue growth of 14.3% year over year. Meanwhile, net income increased by a robust 82%, as the company became significantly more profitable. Moreover, operating cash flow was up by 20.6% last year, further demonstrating its financial discipline.

In March 2024, the company reported its latest quarterly earnings print. Revenue was $9.2 billion, a 1.3% increase year over year. Impressively, earnings per share arrived at 95 cents, beating analysts' expectations by 6 cents.

Recently, Mondelēz has replaced its SnackFutures innovation hub and CoLab Program with SnackFuture Ventures, a corporate VC aimed at investing in disruptive growth-stage companies aligned with its market categories. According to Richie Gray, VP and Global Head of SnackFutures, the new entity will make strategic investments directly from Mondelez's balance sheet. His approach allows Mondelēz to leverage external innovation to enhance product offerings, expand market reach, and stay competitive in the evolving snack industry landscape.

Looking ahead, Mondelez is projected to increase earnings and revenue annually by 5.5% and 4.2%, respectively. The company's earnings per share are anticipated to grow by 7.1% annually. Additionally, the forecasted return on equity for Mondelez International is expected to reach 17.9% within three years. These projections indicate a steady trajectory towards financial growth and profitability for the company.

Overwhelmingly, Wall Street analysts remain bullish about Mondelez's stock prospects. The stock has a consensus rating of "strong buy" with a mean price target of $80.28, indicating a 17.6% upside opportunity.