The stock market has had an amazing run over the past three years. Some have said, including the Fool's own Morgan Housel, that this could be the best three years we ever witness. That has a lot of investors cautious about what the next three, five, or even 10 years might hold for their investments.
One way to counter any downward action in the stock market is to lock yourself into low-beta, high-yielding dividend names -- especially those that are based in necessity sectors. The advantage of necessity stocks is that they'll always be in demand regardless of what the economy is doing and therefore be far less susceptible to the wild price swings we've witnessed twice now since 2000.
After some market-scouring, I think I have just the recipe for those seeking a new source of dividend income ... and for your own sake, I hope you've eaten recently because there might be some drooling involved otherwise.
Nibble on this
I'm talking about the diversified food sector. It's an often overlooked concept, but people need to eat! Rising commodity costs are the biggest enemy of food producers, but they are often able to slowly pass along price increases to consumers. The three stocks I had in mind that could be worth a nibble are:
H. J. Heinz (NYS: HNZ)
Kraft (NYS: KFT)
Unilever (NYS: UL)
Source: Morningstar, Yahoo! Finance, data as of close 03/09/12.
Heinz offers the steadiest dividend of the bunch with an annualized growth rate of 7.5% since 2003. This company is much more than just a ketchup producer with its fingers entrenched in the condiments section, pasta aisle and now infant food.
Kraft could be the most well-known name of the bunch. Who didn't grow up eating macaroni and cheese at least twice a month? Kraft's dividend has grown 8.4% annually over the past decade, but it has failed to raise its dividend since mid-2008. The company has announced plans to split into a domestic grocery business and an international snacks company. The division will provide companies with two different risk and dividend profiles for investors to choose from.
Unilever is the oddball in that its dividend has been relatively flat in recent years as a result of European uncertainty. Even with its dividend growth only now starting to pick up, Unilever still boasts a yield tied for the highest in this grouping at 3.6%. Like Kraft, its line of products is diversified enough that even the economic maelstrom we're witnessing in Europe isn't enough to curb its solid profits.
Here's a quick roundup of the annual dividend of these three companies over the past five years:
Keep in mind though that not every stock in the food sector is an automatic buy based on yield. Sanderson Farms (NAS: SAFM) , for example, has been paying out a dividend despite producing quarterly losses stemming from a weakening in chicken demand, lower poultry prices and rising input costs. The only thing this situation seems to be missing is a big, bad wolf.
Similarly, Cal-Maine Foods (NAS: CALM) could present a dilemma to investors since it's put all its eggs in one basket. Terrible pun aside, Cal-Maine deals with eggs and eggs alone which gives them no industry fallbacks if pricing becomes unfavorable. Not surprisingly, Cal-Maine's dividend has been vacillating wildly over the past three years.
Sometimes it's the easy ones that we forget. Food producers provide necessary products and, as such, have a fairly consistent cash flow that investors can count on to provide substantial dividend income. Perhaps it's time to peruse the diversified food aisle in your portfolio?
Do you have a favorite food stock? Share it in the comments section below, and consider adding these three names to your free and personalized watchlist.
Just as I've done here, our team of analysts at the Motley Fool is always scouring a sea of companies for the best possible dividend plays. See for yourself what 9 companies our analysts feel could lead your portfolio to the Promised Land. Best of all, you can find out the names of these companies for free, but only for a limited time!
At the time thisarticle was published Fool contributor Sean Williams has no material interest in any companies mentioned in this article. His diet lately has consisted of hamburgers and Starbucks coffee. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.The Motley Fool owns shares of Cal-Maine Foods. Motley Fool newsletter services have recommended buying shares of H.J. Heinz and Unilever. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that's a daily part of our diet.
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