Buy These 3 'Aristocrat' Names for Recession-Proof Dividends
The consumer staples sector is home to some of the most well-known dividend growth stocks in the world. In fact, the consumer staples sector has the most "Dividend Aristocrats" of any individual market sector.
Consumer staples are also appealing stocks for risk-averse investors as defensive industries such as food and beverage and personal care products see steady demand, even during recessions.
The following three consumer staples stocks have increased their dividends for over 10 years, have yields above the market average and should continue to raise dividends even during recessions.
1. Mondelez International
Mondelez (MDLZ) was formed in 1989 as a result of the merger between Philip Morris and General Foods Corp. The company has undergone a slew of mergers and spinoffs since that time. Today, Mondelez focuses on its core categories of chocolate, biscuits and baked snacks. The global food processor manufactures and distributes snacks in more than 150 countries, generating annual revenues of about $36 billion. Its 2023 revenues came 36% from Europe; 31% from North America; 20% from Asia, the Middle East and Africa; and 14% from Latin America.
Mondelez reported its Q1 2024 results on April 30, 2024. For the quarter, as organic growth came down to more normalized levels, net revenue growth slowed down to an increase of 1.4% year over year, driven by organic net revenue growth of 4.2% and dragged down by volume/mix of -2.1%. Adjusted earnings per share (EPS) rose 10.5% (and 16.5% on a constant currency basis) to $0.95 for the quarter. Organic net revenue growth of 7.1% was the strongest in Latin America, followed by 5.9% growth in Asia, the Middle East and Africa; 4.4% growth in Europe; and 1.3% in North America.
Mondelez witnessed stronger organic this quarter with net revenue growth of 8.3% in emerging markets and 1.4% in developed markets. Emerging markets made up 40% of the Q1 net revenue. Adjusted gross profit rose 9.5% to $3.6 billion, while adjusted gross profit margin rose 2.4% to 39.2%. Its adjusted operating income rose 12.2% to $1.7 billion, while its adjusted operating margin rose 1.6% to 18.5%.
The company maintained its guidance for 2024, as follows: Organic net revenue growth of 3% to 5% and adjusted EPS growth of high single-digit on a constant currency basis. It also continues to anticipate the generation of free cash flow of more than $3.5 billion.
We estimate a five-year growth rate of 7.5% assuming that emerging markets will continue to drive relatively higher growth than developed markets. Mondelez has also made acquisitions along the way — specifically, nine acquisitions since 2018.
Mondelez’ dividend payout ratio is about 50%. The payout is safe, so we don’t expect a dividend cut to be a material risk, even in a recession. MDLZ stock currently yields 2.5%.
2. J.M. Smucker
J.M. Smucker (SJM) operates in the packaged food and beverages sector and owns well-known brands including Smucker’s, Jif and Folgers. Furthermore, it also owns a pet food business with popular brands like Milk Bone and 9Lives.
On June 6, 2024, Smucker’s reported results for the fourth quarter of fiscal 2024, which ended on April 30, 2024. Currency-neutral organic sales grew 3% over the prior year’s quarter, mostly thanks to material price hikes. The strong volumes amid price hikes are testaments to the strength of the brands of the company.
Adjusted earnings-per-share grew 1%, from $2.64 to $2.66, and exceeded the analysts’ estimates by $0.33. Smucker’s provided decent guidance for fiscal 2025. It expects comparable sales growth of 9.5%-10.5% and adjusted earnings-per-share of $9.80-$10.20.
A major acquisition will boost future growth for SJM. In 2023, Smucker’s completed the acquisition of Hostess Brands (TWNK) in a cash-and-stock deal with a value of $5.6 billion, which includes debt. Hostess Brands has many sweet baked goods brands, which will expand the product portfolio of Smucker’s and create synergies.
Thanks to these initiatives, we expect the company to drive solid 4% average annual earnings-per-share growth over the long term. We have confidence in the long-term competitive viability of the company because it possesses significant economies of scale and brand power in the segments it operates in.
Furthermore, the company has proven to be very recession resistant as its products are generally considered essentials rather than discretionary.
SJM is a Dividend Aristocrat that has increased its dividend for 27 consecutive years. SJM stock has a 3.9% current dividend yield.
3. Sysco Corporation
Sysco Corporation (SYY) is the largest wholesale food distributor in the United States and is expanding internationally. The company was founded in Houston, Texas, in 1969 and now serves 600,000 locations with food delivery, including restaurants, hospitals, schools, hotels and other facilities. According to estimates, the company has a 16% market share of total food delivery within the United States.
On April 30, 2024, Sysco reported third-quarter results for fiscal year 2024. The company demonstrated significant growth across key metrics compared to the same period in fiscal year 2023. With sales rising by 2.7% to $19.4 billion and gross profit surging by 5.2% to $3.6 billion, Sysco showcased its resilience and adaptability amid a challenging economic environment.
Sysco's focus on seizing market share profitably and its leadership team's agility and accountability were highlighted as instrumental in meeting profit objectives for the quarter.
Through acquisitions and, more recently, the company growth organically, with share buybacks, has increased earnings. Tax cuts and share buybacks have accelerated earnings growth in recent years, but this level of growth will not be permanent. The company is also in the process of cutting overhead costs, which should mildly boost bottom-line growth. We anticipate 7.0% earnings growth over the next five years.
Sysco has an economic moat due to its large-scale and entrenched distribution infrastructure, which gives it a cost advantage over most competitors. This moat is evidenced by the company's double-digit returns on invested capital every year, much higher than its weighted average capital cost.
Thanks to this stability, Sysco has raised its dividend every year since it went public 53 years ago, and we expect it to continue to grow in the years to come. SYY is a Dividend King with a current yield of 2.8%.
More Dividends
- 3 of the Safest Dividend Stocks With Recession-Proof Payouts
- 3 Attractive High Dividend Stocks Yielding Over 6%
- These 3 High Yield Stocks Have Increased Their Dividends for 50 Years
At the time of publication, Ciura had no positions in any securities mentioned.