6 Stocks To Avoid This Grilling Season
Wall Street Daily | May 28, 2015 08:07AM ET
I hope you had an enjoyable Memorial Day holiday. It’s now (unofficially) summer!
If you’re like me, you spent some time grilling with friends and family this weekend. Indeed, all across the country, people were chowing down on burgers, sausages, and chicken (maybe even a few vegetables).
And since barbecue season is now upon us, it’s worth asking: Are the companies providing our summer fare a “Buy” right now?
h2 Purveyors of Fine Food and Drink/h2The food and beverage industries offer a number of dividend-paying stocks, including the six below, which are some of the biggest names in the business.
First is Tyson Foods (NYSE:TSN), the world’s second-largest processor and marketer of chicken, beef, and pork. Its brands include Tyson (of course), as well as Hillshire Farm, Jimmy Dean, Ball Park, and Sara Lee.
Next is Hormel Foods (NYSE:HRL), famous for introducing Spam. Hormel owns its namesake brand in addition to Black Label, Lloyd’s, Saag’s, and Wholly Guacamole. It also owns a few other popular but less barbecue-related brands like Skippy and Chi-Chi’s.
Kraft Foods Group (NASDAQ:KRFT) – which recently merged with Heinz – is virtually inescapable at any barbecue. Among its brands, Kraft counts A1 steak sauce, Country Time Lemonade, Cracker Barrel cheese, Kraft Mayo, JET-PUFFED Marshmallows, Kool-Aid, Oscar Mayer meats, and Heinz condiments.
Now, in my opinion, a good barbecue isn’t complete without a few beers. And when it comes to beer, there’s no company quite like Anheuser-Busch Inbev (NYSE:BUD). This massive conglomerate owns everything from Budweiser to Stella Artois to Corona. It also owns Beck’s, Leffe, and Hoegaarden. And it even owns craft breweries like Goose Island and Elysian.
SABMiller (LONDON:SAB) is the world’s second-largest beer company, though its $58-billion market cap is just one-third of Anheuser-Busch’s. SAB owns Miller, Coors, Blue Moon, Grolsch, Foster’s, Keystone, and Leinenkugel’s, among many, many others.
Finally, there’s Heineken (AMS:HEIN), the Dutch brewery that also owns Amstel, Sol, Murphy’s, and many other brands across the globe. With a $46-billion market cap, Heineken is the world’s third-largest beer company.
h2 Big Valuations, Small Dividends/h2Let’s start by looking at the current valuation of these companies compared to their 10-year median:
Get The News You Want
As a group, these stocks are trading at a significant premium right now. In fact, only Tyson and AB-InBev are trading at even somewhat justifiable valuations. The rest are prohibitively expensive. Thus, we’ll narrow our focus to hot dogs, sausages, and beer.
Next, let’s take a look at the dividends paid by Tyson and ABI. The latter yields a pretty respectable 2.7% and, with a dividend payout ratio of 68.5%, it’s well below our 80% threshold. Unfortunately, Tyson’s indicated yield is a meager 0.9% – better than nothing, but not what we’re looking for as income investors.
That leaves us with just one out of six companies, Anheuser-Busch. And it does have a lot going for it. Total revenue has grown for six consecutive years, including by more than 8% in 2014. It has a decent yield, and the dividend has grown substantially since 2009, when it was cut by 90%.
However, the company is still expensive relative to its 10-year median – and perhaps most importantly, the U.S. market is facing increasing pressure from craft beer sales.
Consider this: By the end of 2014, craft beer sales were responsible for 11% of the total market in the United States. That’s up from just 2.6% in 1998, an incredible rise.
The trend isn’t slowing, either. Last year, craft beer dollar sales grew 22%, faster than in any previous year. Once a niche market, craft beer is now a $20-billion-a-year industry. So, while ABI does pay a decent dividend, it’s on the wrong end of a growing market trend. Plus, the stock isn’t exactly cheap right now.
Bottom line: Go ahead and enjoy some sausages, hot dogs, and beer this summer – but don’t bother with these major food and beverage stocks.
Original post
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.