Market Health

The Dividend-Paying Snack Maker to Add to Your Portfolio

One trend has been quite apparent since the pandemic began – Americans are stuffing their faces.

For much of quarantine, this fact has been cited as a big moneymaking opportunity for investors.

And the statistics are so satisfying.

According to the Frito-Lay U.S. Snack Index, 66% of consumers now have more snacks in their homes than they did prior to the pandemic.

And that’s because 63% of Americans are snacking to break up the monotony of staying home. Plus, 76% of people are using snacks as a way to treat themselves.

Over the many months of quarantine, I myself have made scores of simple snacks – like puffed rice cereal treats. And I’d wager that I’ve made and consumed more of these snacks in the past 10 months than I have in the past 10 years.

On the surface, these numbers should offer the sweet smell of success for snack food giants such as Conagra Brands (NYSE: CAG), General Mills (NYSE: GIS), Kellogg (NYSE: K), Kraft Heinz (Nasdaq: KHC), Mondelēz International (Nasdaq: MDLZ) and PepsiCo (Nasdaq: PEP).

And financially, they have.

But in actuality, their stock performances have stunk.

Run Over by Peloton

Investors always scramble to cram themselves into the next big thing.

And in this rush, some great companies can be left behind.

Over the past year, Conagra, General Mills, Kellogg, Kraft Heinz, Mondelēz and PepsiCo have posted tepid returns.

Snack Food Stocks Performance

In fact, the largest gains of the bunch are from General Mills and Kraft Heinz. But both are still quite meager, below 9%.

Compared with the rest of the stay-at-home economy stocks, that’s a lackluster performance.

And it’s way behind the almost 45% gain on the Nasdaq and the 18% return on the S&P 500 during the same stretch. The only positive takeaway is that the best performers have essentially matched the return of the Dow Jones Industrial Average over the past year.

So what gives?

If Americans are packing away more snacks, why aren’t these junk food maker shares soaring higher than Peloton (Nasdaq: PTON)?

Sweet Dividends to Chew On

The simple answer: size and dilution.

Let’s use PepsiCo as an example.

In the third quarter, the consumer staples giant reported $18.09 billion in revenue. This was a 5.25% increase year over year.

The company’s Frito-Lay segment – which includes my personal favorite, Fritos, but also Cheetos, Doritos, Lays, Tostitos and more – was hailed for its performance. Tostitos saw double-digit revenue growth – people couldn’t get enough nachos during quarantine. But as a whole, the entire segment’s sales grew only a little more than 7% to $4.399 billion.

Beverages are still the largest segment for Pepsi.

And then we have situations like Conagra’s.

The company reported second quarter results last week. Revenue grew 6% to $3 billion, though its groceries and snacks segment saw sales leap 12.5% to $1.3 billion.

And looking ahead, Conagra believes it’ll see revenue growth between 6% and 8% for its third quarter.

Now, this topped expectations, but shares fell nearly 5.5% on the report.

Right now the anticipation of growth from investors has detached from reality.

But here’s the good news…

Yes, these shares underperformed the surging markets over the past year. But these are giants. I always recommend investors have exposure to what they consume. And these companies are literally just that – they produce all of our favorite snack foods.

They’re not going away. And they know it. That’s why each offers a decent dividend yield…

  • Conagra: 3.26%
  • General Mills: 3.52%
  • Kellogg: 3.74%
  • Kraft Heinz: 4.71%
  • Mondelēz: 2.18%
  • PepsiCo: 2.87%.

Chances are, after the monster run in tech, cannabis, stay-at-home stocks and Bitcoin, your portfolio is probably overweight in these plays. Even though vaccines are slowly rolling out, more than 40% of Americans are still working from home. And there’s little evidence that snacking habits are going to change.

That means there’s an opportunity to get a little defensive and add a dividend-paying snack maker to your portfolio.

Here’s to high returns,

Matthew