Food stocks are generally considered one of the stodgiest segments of the consumer staples sector. But you really should have some reliable companies at the foundation of your millionaire-maker portfolio. Three that you'll want to keep an eye on are Coca-Cola(NYSE: KO), PepsiCo(NASDAQ: PEP), and Hormel Foods(NYSE: HRL). But each one is in a very different situation today. Here's what you need to know to get started.
1. Coca-Cola deserves a spot on your wish list
Coca-Cola has increased its dividend annually for 62 consecutive years, easily placing it among the elite group of Dividend Kings. The current dividend yield is roughly 2.7%, which is well above the S&P 500 index's scant 1.2% yield. It is also just a touch higher than the 2.5% average yield for consumer staples stocks, using the Consumer Staples Select Sector SPDR ETF as an industry proxy. So, in some ways, it looks like Coca-Cola is attractive right now.
The problem here is that Coca-Cola's price-to-sales and price-to-earnings ratios are both above their five-year averages. That hints that the stock, despite what is a relatively attractive yield, is a bit pricey. It is probably best put on the wish list in anticipation of a bear market.
Coca-Cola is the leading non-alcoholic beverage company with a global reach and a portfolio filled with iconic brands. It has a size and scale that suggest it is unlikely to be dethroned anytime soon. When Wall Street turns pessimistic it will probably throw this baby out with the bathwater. If you make up your mind now to buy it, you will increase the chances that you will follow through at a time when it will be very hard to go against the bearish grain.
2. PepsiCo is attractive right now
At first glance, you might think that also buying PepsiCo would be doubling up on the beverage space. That's true to some degree, but PepsiCo's business is so much more diverse than that. Sure, it is No. 2 in beverages, but it is a solid No. 1 in salty snacks via Frito-Lay and it also has a material lead in packaged foods with its Quaker Oats business. A little overlap isn't so bad when it comes with Frito-Lay and Quaker Oats.
What's interesting here is that PepsiCo's price-to-sales and price-to-earnings ratios are below their five-year averages. The stock's 3.2% dividend yield, while above the industry average and the market, is also toward the high side of the company's historical yield range. And, of course, it is a Dividend King, with 52 consecutive annual dividend increases under its belt.
If you are looking for an attractive stock to add to your millionaire-maker portfolio, PepsiCo is one that you could easily buy today. While it isn't in the deep discount bin, it does look at least fairly priced, or a little cheap.
3. Hormel is the value play
Hormel Foods has increased its dividend annually for 58 consecutive years, making it a Dividend King like Coca-Cola and PepsiCo. Hormel's dividend yield is the highest of the group at around 3.6%. What's interesting here, however, is that the yield is near the highest levels in Hormel's history. That suggests that the food maker is on the deep discount rack. There's a good reason for this.
Right now, Hormel is dealing with a suite of headwinds. That list includes trouble passing inflationary cost increases on to consumers, a slow recovery in China, avian flu, and buying Planters just as the nut segment of the snack category started to slow.
Individually, these are all manageable problems. Collectively, however, investors are worried that Hormel is going to have lingering problems. That's probably true -- it could take a couple of years for Hormel to work through the collection of issues it faces. But you are getting paid very well to wait for better days.
One key plus here is that the not-for-profit Hormel Foundation owns nearly 47% of Hormel Foods' stock. It uses the dividends it collects to support its philanthropic efforts. So dividend investors have an advocate on the inside with, basically, the same goal (a reliable income stream). Add that to Hormel's status as a Dividend King and you should probably feel pretty comfortable stepping in here while Wall Street is running scared.
Three high-yield Dividend King stocks to keep you busy
All in, if you are looking for stocks that can provide a reliable foundation to a seven-figure portfolio, Coca-Cola, PepsiCo, and Hormel should be on your list. Hormel is out of favor now and looks like an attractive value-oriented buy. PepsiCo is on the cheap side and should probably be considered a buy now, as well. Coca-Cola isn't nearly as cheap, despite a higher yield than its peers. You can keep it on the wish list so you have something to buy when the market eventually heads south again.
Don’t miss this second chance at a potentially lucrative opportunity
Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.
On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:
- Amazon: if you invested $1,000 when we doubled down in 2010, you’d have $21,266!*
- Apple: if you invested $1,000 when we doubled down in 2008, you’d have $43,047!*
- Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $389,794!*
Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.
*Stock Advisor returns as of October 7, 2024
Reuben Gregg Brewer has positions in Hormel Foods. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
