After the buyer inflation quantity spooked traders and despatched markets decrease earlier within the week, we now have fears the Fed can be mountaineering rates of interest too far too quick, pushing us right into a recession.
So, the place ought to traders put their cash in the event that they assume a downturn is across the nook?
One space we consider will carry out nicely even in an financial downturn is the meals business, which is filled with blue chip stocks which have carried out nicely in a number of recessions, due to their robust enterprise fashions which have allowed for many years of dividend progress.
Three of our favourite blue chip meals shares embody:
Let’s chew into them now:
Hungry for Hormel
In enterprise because the late 1800s, Hormel has at all times centered on pork merchandise, which separated it from its friends. For instance, Hormel produced the world’s first canned ham in 1926.
At present, Hormel’s portfolio additionally consists of Hormel, Spam, Skippy peanut butter, Jennie-O turkey merchandise, and Applegate, amongst others.
Whereas manufacturers reminiscent of Spam and Applegate are nonetheless vital to the enterprise, the corporate has moved to diversify its product lineup away from processed meats in an effort to seize a wider market share.
For instance, Hormel accomplished its $3.35 billion buy of the Planters snack portfolio from Kraft Heinz Firm (KHC) in early June of 2021. This was no small addition for the corporate. Planters generates roughly $1.1 billion of annual income the yr earlier than the acquisition closed. On the identical time, Hormel’s annual income was $9.5 billion.
The strikes to supply merchandise away from primarily processed meats has allowed Hormel to compete efficiently in quite a few classes throughout the meals business. These classes are additionally very steady and pricing makes them reasonably priced to many shoppers, which helps to maintain demand up even throughout financial downturns.
That is main issue why Hormel’s earnings per share grew virtually 17% for the 2007 to 2009 time interval. The dividend grew 27% throughout that very same time as nicely. The inventory has additionally outperformed the S&P 500 this yr, dropping 5.9% year-to-date in comparison with a 17% decline for the index.
Hormel’s enterprise mannequin has offered for sluggish and regular progress for many years, which is why the corporate has raised its dividend for 56 consecutive years. The dividend has elevated with a compound annual progress price (CAGR) of 14% over the past decade, however that progress price has slowed barely in recent times.
Nonetheless, this Dividend King has a projected payout ratio of 56% for 2022, making it possible that the dividend will proceed to develop going ahead. Shares yield 2.3%, a superior determine in comparison with the typical yield of 1.6% for the S&P 500.
Kellogg Can
Subsequent up is Kellogg, which has its solely storied historical past. The corporate was based in 1906 and, over time, has develop into a pacesetter within the processed meals business.
Kellogg has lengthy been a high identify within the cereal aisle, holding greater than 30 such manufacturers in its portfolio. The corporate’s best-selling cereals embody Raisin Bran, Fruit Loops, Frosted Flakes, Particular Okay, and Rice Krispies. These manufacturers have been mainstays in grocery aisles and pantries for generations.
The corporate’s different manufacturers embody Eggo waffles, Pringles, Pop-Tarts, and City Home. Kellogg has additionally paid consideration to altering shopper tastes and has made efforts to supply more healthy meals choices. This consists of Morningstar Farms plant-based proteins, Pure Natural fruit bars, Sensible Begin cereal, and Kashi breakfast choices and snack bars. This has helped the corporate enchantment to the extra health-conscious shopper.
Kellogg navigated the Nice Recession nicely as earnings-per-share grew 14.5% from 2007 to 2009. Shareholders acquired a complete dividend improve of greater than 19% throughout this time. The inventory has been an outlier thus in 2022 because it as gained 9.5% year-to-date.
Extra just lately, Kellogg has introduced main modifications to its firm. On June 21 of this yr, Kellogg announced that it will break up its firm into three separate publicly traded entities. The three new corporations will every give attention to a special facet of enterprise, together with a world snacking firm, a North American cereal firm, and a plant firm. These companies generate annual income of $11.4 billion, $2.4 billion, and $340 million, respectively. We believe that the separate corporations will be capable of outperform what Kellogg may produce as a single entity as every will now give attention to what it does finest.
Whereas the spinoff off ought to be good for shareholders, it stays to be seen what occurs to Kellogg’s dividend. That stated, the corporate has elevated its dividend for 18 consecutive years and has an inexpensive anticipated payout ratio of 57%. The dividend has a CAGR of simply over 3% since 2012, however the inventory gives a strong yield of three.4%, greater than twice that of the S&P 500.
J.M. Smucker Up
Our remaining identify for consideration is J.M. Smucker, which was based in 1897 and at this time is a number one producer of meals and drinks merchandise.
J.M. Smucker began off making and distributing apple cider and apple butter. Over time, the corporate expanded and have become a powerhouse in its business. The corporate now has a portfolio composed of manufacturers which can be well-known and trusted by shoppers all around the world. This consists of the namesake Smucker’s model, Jif peanut butter, and Folgers espresso to call a number of. The corporate additionally has some highly regarded pet meals manufacturers, together with Meow Combine, Kibbles ‘n Bits, 9Lives, and Milk-Bone.
The wide range of merchandise permits J.M. Smucker to compete in quite a few classes, offering diversified sources of income and protects the corporate in case of problem in a sure space.
This just lately got here to move as J.M. Smucker needed to recall a sizeable portion of its Jif peanut butter resulting from salmonella positioning. The corporate needed to shut down manufacturing because of this. This drove a 9% decline in quantity in the newest quarter, however natural gross sales nonetheless improved 4% resulting from worth will increase, demonstrating the recognition of merchandise and J.M. Smucker’s means to move alongside rising prices.
J.M. Smucker’s portfolio power performed a key position within the firm’s means to develop earnings-per-share by 39% for the 2007 to 2009 interval. The corporate grew its dividend 19% through the interval. The inventory has returned just a bit greater than 2% year-to-date, however that is considerably forward of the market.
J.M. Smucker has offered a dividend improve for 26 years, qualifying the corporate as a Dividend Champion. Over the past decade, the dividend has a CAGR of seven.4%. The dividend payout ratio is anticipated to be 57% for the yr whereas shares of J.M. Smucker yield slightly below 3%.
With inflation persevering with to run sizzling, the chance of continued Federal Reserve motion is excessive. This will increase the probabilities that the Fed cools the economic system too rapidly and a recession takes place.
Hormel, Kellogg, and J.M. Smucker are three shares which have carried out very nicely beneath duress as their merchandise stay in demand even because the economic system falters. Every identify grew EPS within the final recessionary interval whereas on the identical time offering shareholders with dividend will increase.
For traders eager to recession-proof their portfolio and discover names that present progress and earnings, we recommend they contemplate any of those names for buy.