Sometimes the hidden gems in the stock market are the ones right in front of you.
These companies make products you simply can't live without. Their products likely fill your drawers and cupboards. Incredibly, one company has products in 93% of U.S. homes...
They're also some of the best dividend stocks you can buy today. One of those we'll show you today could soar nearly 300%...
Despite the importance of their products, some of the biggest brands in the world are being overlooked by investors. Many mistakenly believe you need to invest in flashy tech firms and trendier offerings to beat the markets.
You may already know that consumer staples are reliable picks in bear markets: It's the second-least volatile investment sector since 1962, according to Fidelity.
But you might not know that consumer staples have delivered the second-highest returns of any sector in that time. In other words, these stocks have lots of upside.
One reason these stalwarts have lost their shimmer on Wall Street comes from a misconception - one of many - about millennials. As Jack Hough of Barron's wrote in April, conventional wisdom says young people gravitate to small, independent brands, instead of the big-name brands that have been around for generations.
However, a survey conducted by Jefferies shows leading brands are not affected by this trend. To the extent that younger brands are gaining market share, they are doing so at the expense of lesser known brands - not the ones we'll show you today.
The old, reliable names are still the ones people need most. And because investors aren't paying attention, many of them are available at steep discounts. One pick we're about to show you could pop by as much as 280%.
We've got five dividend stocks for you today that are behind dozens of products you know and love.
All of them command dominant market shares in their segments.
They all deliver nice, big yields with low payout ratios.
And they're all undervalued by the market right now. So you can expect a nice pop in the near future.
Take a look and see why it's time to put your investment money where your shopping dollars go...
Dividend Stocks You Can't Live Without, No. 5: J.M. Smucker Co.
Everybody knows the ubiquitous Smucker's brand of fruit spreads. But the 121-year-old Ohio-based J.M. Smucker Co. (NYSE: SJM) is a food conglomerate worth over $12.5 billion. Brands include Jif; several Pillsbury baking products; store-bought coffee brands like Folger's, Dunkin Donuts, and Café Bustelo; and some of the top-selling pet foods in the world.
According to the company's latest annual report, a Smucker brand product can be found in 93% of U.S. households.
But that doesn't mean the company has hit a ceiling. Café Bustelo has grown at a 12% compound annual growth rate over the last five years. And Smucker's Uncrustables tops that at 17%.
In April, Smucker announced it would be boosting its pet food product lineup with the $1.7 billion acquisition of Ainsworth Pet Nutrition. That includes celebrity chef Rachael Ray's Nutrish line, one of the fastest-growing lines in the premium pet food category. Smucker expects the sale to generate an additional $800 million in sales in the first year, in addition to $55 million in company savings and a $200 million tax benefit.
SJM's dividend yield of 2.8% is roughly in-line with a 10-year U.S. Treasury note. That dividend has risen every year since 2002, and the company has managed to keep its payout ratio - a stock's dividend as a percentage of its earnings per share (EPS) - at just 27.54%. That means Smucker should have no problem boosting that dividend and continuing to grow earnings.
If SJM hits earnings estimates in its upcoming earnings call, it will have boosted EPS by 22% from the year before and overall by 53% over the last three years. Shares of SJM currently trade just below $113 each.
With J.M. Smucker, you get some of the most dependable food brands in the world and some of the fastest-growing brands, too.
Dividend Stocks You Can't Live Without, No. 4: Clorox Co.
When Barron's named Clorox Co. (NYSE: CLX) one of the most sustainable companies in the United States for 2018, staff writer Leslie P. Norton noted the irony that its signature product - bleach - is notoriously toxic.
But Clorox's lineup includes brands like BRITA water filters, Burt's Bees personal care products, Hidden Valley dressings, Kingsford charcoal, and Fresh Step cat litter.
Many of the products Clorox sells dominate their markets. Clorox Disinfecting Wipes and Toilet Bowl Cleaners lead their U.S. markets with 54% and 41% shares, respectively. Clorox Bleach dominates 60% of its market. BRITA filters command 54%. And Kingsford runs away with the charcoal market at a 74% share.
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No wonder Clorox is raking in profits at an impressive clip. With one quarter to go in FY2018, the company is expected to grow EPS by 15.7% for the year.
CLX just boosted its dividend by an impressive 14%, marking the 41st consecutive year of raises for this dividend aristocrat. And it still maintains a payout ratio of 54%.
But most impressive is its return on equity, a stunning 105.13% over the last 12 months. That's compared to an industry average of just 16.44%.
In spite of that, Clorox stock has slipped to about $117 from a 52-week-high of $150. Based on its market dominance, impressive dividend, and fantastic returns, it looks like Wall Street is severely undervaluing this gem. The time to buy is now.
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Dividend Stocks You Can't Live Without, No. 3: General Mills
General Mills Inc. (NYSE: GIS) traces its roots back to a six-story flour mill built in 1866 near the St. Anthony Falls in Minneapolis. The general consensus was that it would be too big and would flood the market. But the mill was a success.
After the first mill collapsed in an explosion, the owner Cadwallader Washburn rebuilt it even bigger, this time implementing new safety measures that he shared with his competitors.
In 1880 the flour from the new mill won a gold medal at the Millers' International Exhibition in Cincinnati - hence the name of the Gold Medal flour you can still buy in the supermarket today.
In addition to flour, General Mills is of course known for its cereals like Cheerios, Wheaties, and Lucky Charms. But its lineup also includes Green Giant, Betty Crocker, Bisquick, Pillsbury (the products not licensed to Smucker), Cascadian Farm, Annie's Homegrown, and Häagen-Dazs ice cream.
Like Smucker, General Mills has also gotten into the pet food business. In April the company completed the acquisition of Blue Buffalo Pet Products Inc. The new pet food branch of the business has averaged a compound annual growth rate in net sales of 12% over the last three years, totaling $1.3 billion in the 2017 fiscal year.
General Mills has raised its dividend 75% since 2010, with a yield now at an eye-catching 4.6%. The dividend looks safe, with a payout ratio of 52.14%. And in spite of the rising dividend, EPS has been up every year since 2010.
Analysts on average put the target price for GIS about 15% higher than where it is. But this might be a conservative estimate. The stock's forward PE ratio trails the S&P by nearly 20%, indicating that the market is undervaluing the growth on the way, while GIS's yield is nearly 150% higher.
In short, General Mills is a great value stock. The yield far surpasses even a 30-year Treasury, while growth has been consistent and is underappreciated by the market right now.
Dividend Stocks You Can't Live Without, No. 2: Newell Brands
You may have never heard of Newell Brands Inc. (NYSE: NWL). But you know its products.
Chances are good somewhere in your house or office you can find Rubbermaid containers, Coleman coolers, Sharpie or PaperMate pens, Yankee Candles, Crock-Pot slow cookers, Mr. Coffee coffee makers, or Bicycle playing cards.
Newell's dividend has quadrupled since 2011, with a yield now at 3.3%. And it maintains that dividend with an astonishingly low 15.63% payout ratio.
Newell stock has been hit hard recently. It currently sits around $27, a little less than half of its 52-week high. That has a lot to do with a disappointing earnings report in November, as well as talk of proxy fights in ownership. The company also sold off its plastic packaging business in May and is planning more restructuring in the near future.
Some drop in the stock price may have been warranted amid the uncertainty. But Wall Street, as it often does, overreacted - by a lot.
Value is value. And Newell has plenty to justify a significantly higher stock price. And the transformation plan, selling off some of its concerns to focus on its leading brands, is only going to increase that value.
To illustrate just how much the market overcorrected, Newell's PE Ratio for the last 12 months has dipped down to a miniscule 4.9. That's compared to an industry average of 18.62. If Newell popped back up to even half the average, that would mean a 90% gain. If it hit that average, it would be a gain of 280%.
This is a prime opportunity to grab a stock that too many are discounting without good reason.
Dividend Stocks You Can't Live Without, No. 1: Campbell Soup Co.
When it comes to brand recognition, it's hard to compete with Campbell Soup Co. (NYSE: CPB). More than a half-century after the Campbell's Soup can became a piece of counterculture art, it retains its signature carnelian red-and-white color scheme (originally modeled after Cornell's football uniforms).
There isn't much reason to tinker with the brand. Campbell is the most reputable company in the United States, according to an annual report released by the Reputation Institute.
But it isn't just soup that's generating profits for the Camden, N.J.-based company. Pepperidge Farm, V8, Arnott's, Bolthouse Farms, Pace, and Prego are all under the umbrella of Campbell Soup, which sells products in 120 countries.
In spite of its nearly 150-year history, CPB has made a commitment to 21st century business practices.
Among its pledges to investors and customers is to increase transparency and sustainability in its food production processes. Campbell has also made significant inroads into the e-commerce market, with the expectation that the company will generate $300 million in annual e-commerce sales by 2021.
The company made a significant move toward that end by partnering with meal-kit service Chef'd in 2017. One benefit from the partnership means that web users who find recipes on the Campbell's Kitchen website can be directed straight to Chef'd, where they can order the ingredients - all in the proper proportions - and have them delivered directly to their door.
Campbell also acquired North Carolina-based snack food giant Snyder's-Lance in March. Aside from $300 million in cost synergies and savings, the merger gives the companies a combined $10 billion in annual revenue. The snack food industry, which after the merger comprises 46% of Campbell's business, is projected by Research & Markets to grow 25% to $620 billion by 2021.
CPB has an earnings report coming up on May 18. Analysts expect an EPS of $0.61, which would be a 3.4% increase from a year earlier. Keep in mind, though, that Campbell beat expectations last quarter by 22%.
Let's not forget the 3.4% dividend yield, at a 40.3% payout ratio. This company might just keep delivering returns for another 150 years. But if not, it should still be a solid stock for the foreseeable future.
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About the Author
Stephen Mack has been writing about economics and finance since 2011. He contributed material for the best-selling books Aftershock and The Aftershock Investor. He lives in Baltimore, Maryland.