These days, I’ve shared numerous funding concepts among the many client staples sector, as these shares are typically much less dangerous and simpler to foretell. For example, I just lately mentioned Procter & Gamble (NYSE: PG) and Colgate-Palmolive (NYSE: CL), each of which have grown their dividend for 60+ years. On this article, I’m going over two corporations within the packed meals house – Kellogg Firm (NYSE: Okay) and Mondelez Worldwide (NASDAQ: MDLZ). They personal a number of the most iconic recession-resistant client manufacturers, from Pringles and Eggo to Toblerone candies and Oreo. That mentioned, I discover each corporations fairly overvalued towards their development prospects.
Accordingly, I’m impartial on each names.
Are Kellogg & Mondelez Going to Carry out Nicely within the Present Atmosphere?
As a consequence of Kellogg’s and Mondelez’s manufacturers being family favorites, they have a tendency to generate strong gross sales even in the course of the harshest financial environments. This comes with distinctive benefits. For example, traders are nervous about whether or not completely different corporations can sustain with the highly-inflationary atmosphere we’re presently experiencing. But, Kellogg and Mondelez are fairly well-positioned to resist this disaster.
Most of their merchandise, reminiscent of cereal, are on a regular basis requirements/consumables whose demand is extremely inelastic. Thus, the 2 corporations can improve their costs at a tempo that is the same as or larger than inflation with out present process any significant decline in gross sales volumes.
Are Kellogg & Mondelez Worthy Dividend Picks?
As I discussed, corporations within the sector, like Kellogg and Mondelez, are likely to function spectacular dividend-growth data on account of their skill to supply comparatively steady money flows below numerous market environments.
Kellogg’s Dividend Prospects
Kellogg has elevated its dividend for 17 consecutive years and has by no means lower it so far as its public knowledge goes again to 1985. That mentioned, the corporate’s development has lagged over the previous a number of years. Positive, its manufacturers might proceed to generate strong gross sales, as talked about earlier, however this doesn’t translate to development.
Gross sales, in truth, are presently hovering on the similar ranges they did roughly 10 years in the past. Accordingly, dividend development has slowed down considerably currently. Kellogg’s five-year dividend-per-share CAGR stands at a meager 2.5%.
However, Kellogg and Mondelez ought to have the ability to climate the continuing, highly-inflationary atmosphere fairly effectively. Evidently, analysts count on the corporate to ship earnings per share of $4.14 this yr, implying steady efficiency year-over-year.
With a payout ratio of almost 60% and stagnant revenues, it is sensible that dividend development has slowed down. General, I don’t see how Kellogg may begin reaccelerating dividend development with out its payout ratio approaching threatening ranges over the subsequent decade, as the corporate lacks any significant development catalysts.
Mondelez’s Dividend Prospects
Mondelez seems to have grown its dividend for eight consecutive years. Nonetheless, that is considerably deceptive, because the dividend lower solely mirrored the cut up from The Kraft Heinz Firm (NASDAQ: KHC) on the time. Excluding this matter, the corporate has truly by no means lower its dividend since 2001. Dividend-per-share development has been fairly quicker than that of Kellogg because the “lower,” with Mondelez’s five-year DPS CAGR standing at 13%.
Much like Kellogg, analysts additionally count on Mondelez to ship steady outcomes year-over-year, with consensus earnings-per-share estimates pointing towards $2.89. This means a payout ratio of simply over 50%, which can enable the corporate to proceed rising the dividend comparatively quickly.
Nonetheless, except Mondelez manages to develop organically within the coming years, its tempo of dividend development will possible have the identical destiny as that of Kellogg’s.
I’m notably involved about this, as each Kellogg and Mondelez ought to have a tough time rising organically with the U.S. Greenback at such robust ranges, contemplating a big chunk of their gross sales is sourced internationally.
What’s the Goal Value for Kellogg Inventory?
So far as Wall Road’s sentiment goes, Kellogg has a Maintain consensus score primarily based on 9 Holds and two Sells assigned prior to now three months. At $73.73, the common Kellogg inventory forecast implies 2.3% upside potential.
What’s the Goal Value for Mondelez Inventory?
Within the case of Mondelez, the inventory has a Sturdy Purchase consensus score primarily based on 14 Buys and one Maintain assigned prior to now three months. At $68.87, the common Mondelez inventory forecast implies 20.5% upside potential.
Are Kellogg & Mondelez Shares Truly Value Shopping for?
As I discussed on the begging of this piece, Kellogg and Mondelez might be perfect picks today on account of their functionality to report stable outcomes throughout difficult market environments just like the one we’re presently experiencing. That mentioned, I imagine each corporations may have a tough time rising their dividends at a significant tempo over the subsequent decade. Mondelez has grown its dividend quickly, however its payout ratio is regularly shifting larger as effectively.
Lastly, whereas analysts forecast noteworthy upside potential within the case of Mondelez, I imagine each shares are fairly overvalued. At ahead P/Es of 17.3x and 19.7x (primarily based on aforementioned estimates), each Kellogg and Mondelez are presently buying and selling at a major premium.
That is the case, particularly contemplating they need to hardly see earnings-per-share development north of the mid-single digits over the medium time period and that traders ought to require a better fairness threat premium in these securities with rates of interest on the rise.
