Consumer goods stocks are in favor right now. Many food and beverage stocks have outperformed the market over the past year. For example, the Consumer Staples Select SDPR Fund (NYSEArca: XLP) has returned more than 12% over the past year including dividends.
Investors are flocking to top food stocks for a simple reason: people need to eat. The major consumer products companies are highly profitable and generate significant cash flow each year, even when the economy takes a nosedive. This allows them to continue raising shareholder dividends each year.
In an uncertain global economy with heightened geopolitical risk this year, food and beverage stocks satisfy investors’ hunger for reliable growth and stable dividends.
High dividend yields are hard to find, but these three consumer staples stocks offer dividend yields higher than the S&P 500, and could be good choices for income investors.
Top Food Stocks: Kellogg Co. (NYSE: K)
Kellogg has a large portfolio of industry-leading brands including several cereal products and also Keebler, Kashi and Eggo.
Kellogg raked in $13 billion in revenue last year, and its operating profit grew 7% in 2015. Total sales were down 7% for the year, due to the strong U.S. dollar, but revenue increased 1%, excluding foreign exchange.
Management keeps a long-term focus. Kellogg aims to increase revenue 1% to 3% each year, which will be achieved with growth in new international regions like the emerging markets. Sales will also grow from new products, including the Kashi product line.
In the first half of the year, operating profit rose 12% year over year, so the company is on track to meet its objectives. The company anticipates operating profit will rise at least 15% this year.
In July, Kellogg raised its dividend by 4%. The new rate provides investors with a 2.5% dividend yield. The next quarterly payout will be Kellogg’s 367th dividend since 1925.
Top Food Stocks: General Mills (NYSE: GIS)
General Mills has stood the test of time. The history of the company stretches all the way back to 1880 and its first product, Gold Medal Flour. It now has a large brand portfolio including Cheerios, Pillsbury, Betty Crocker and many more.
On June 29, General Mills raised its quarterly dividend by 4%, which was its eighth dividend raise in the past six years. General Mills has paid dividends like clockwork for 117 years. The current dividend yield is 2.7%.
In fiscal 2016, the U.S. retail segment posted a 5% decline in net sales, but operating cash flow increased 3%, to $2.6 billion.
Going forward, the company is focusing on steering capital toward the opportunities with the highest growth potential. For example, General Mills is focusing on cereal, snack bars, and the natural and organic brands. It acquired Annie’s, which makes all-natural foods and snacks, for $820 million. This acquisition has added some growth to General Mills, as the all-natural segment is growing at high rates, due to the shift in consumer purchasing habits.
It is also cutting costs to generate earnings growth. The company expanded profit margin by 450 basis points last year, as a percentage of sales. This helped produce 5% earnings growth last fiscal year. Continued cost cutting initiatives are expected to produce double-digit growth in adjusted earnings per share this fiscal year.
Top Food Stocks: Kraft-Heinz (NYSE: KHC)
Kraft-Heinz is an industry juggernaut, the result of a $45 billion merger. The combined company produces more than 200 brands, eight of which take in $1 billion or more in sales every year. Some of its core brands are Kraft, Heinz, Maxwell House, Oscar Mayer, and Planters.
The merger has opened up a great deal of synergies. Kraft and Heinz were nearly identical companies with similar products and manufacturing processes. Significant cost cuts produced 39% growth in adjusted earnings last quarter.
Kraft-Heinz is also raising prices to drive revenue growth. Last quarter the company increased prices which boosted revenue by 2%.
On Aug. 4 Kraft-Heinz raised its dividend by 4%. The stock offers a solid 2.7% dividend yield.