What are we looking for?
Sustainable dividends from food-and-beverage giants small enough to have takeover appeal.
The screen
PepsiCo Inc.’s US$3.2-billion takeover bid for SodaStream International Ltd. – maker of the world’s leading home carbonation system – highlights growing consolidation in the food-and-beverage industry.
Big players are eager to spur growth – either by swapping their sugary offerings for more healthful trendy treats or by gobbling up and then streamlining smaller competitors. Apart from global giants PepsiCo and Coca-Cola Co., other big firms looking to make more acquisitions include Conagra Brands Inc. and Kraft Heinz Co.
This search, however, is focused on leading industry producers with market caps small enough to enhance their takeover appeal. More important, they should have sound growth prospects and sustainable dividends.
A key tool in the search is our TSI Dividend Sustainability Rating System. It awards points to a stock based on key factors:
- One point for five years of continuous dividend payments – two points for more than five;
- Two points if it has raised the payment in the past five years;
- One point for management’s commitment to dividends;
- One point for operating in non-cyclical industries;
- One point for limited exposure to foreign currency rates and freedom from political interference;
- Two points for a strong balance sheet, including manageable debt and adequate cash;
- Two points for a long-term record of positive earnings and cash flow sufficient to cover dividend payments;
- One point if the company is a leader in its industry.
Companies with 10 to 12 points have the most secure dividends, or the highest sustainability. Those with seven to nine points have above-average sustainability; average sustainability, four to six points; and below average sustainability, one to three points.
More about TSI Network
TSI Network is the online home of The Successful Investor Inc. – the group of widely followed Canadian investment newsletters by editor and publisher Pat McKeough. They include our award-winning flagship newsletter, The Successful Investor. The TSI Best ETFs for Canadian Investors is the latest. TSI Network is also affiliated with Successful Investor Wealth Management.
What we found
Our TSI Dividend Sustainability Rating System generated nine stocks. Even though big players themselves, Mondelez International Inc., Campbell Soup Co., General Mills Inc. and Kellogg Co. are all packaged-food makers ripe for takeovers. (Note: Industry giant Kraft Heinz, with a market cap of US$73-billion, has shown an appetite for major acquisitions.) Flowers Foods Inc. makes bakery goods, including Nature’s Own bread. J.M. Smucker Co. is a leader in jams, coffee and peanut butter. Prepackaged offerings from B&G Foods Inc. include Cream of Wheat and Green Giant frozen vegetables. Lamb Weston Holdings Inc. is a big french fries seller to restaurants, cafeterias and other businesses, while Lancaster Colony Corp. sells most of its own specialty foods to the same market.
We advise investors to do additional research on investments we identify here.
Scott Clayton, MBA, is senior analyst for TSI Network and associate editor of TSI Dividend Advisor.
Scott Clayton