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2 Food Stocks Serving Up Deliciously High Dividend Yields

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Companies in the food industry dont often get much air time or discussion on financial programming as they usually lack the exciting growth of those in high-growth areas.

This doesnt mean that investors should ignore this area of the market, though. Food stocks can provide steady growth, especially in recessionary environment, while paying a very high dividend yield.

We will look at two food stocks paying dividend yields that investors should find appetizing.


Smucker

The J.M. Smucker Co. (NYSE:SJM) is a leading provider of branded food and beverages. The companys food products include Jif, Smuckers, Uncrustables and Knotts Berry Farm. Beverages include Folgers and Dunkin' brand coffee. Smucker also has a growing pet foods business that includes Kibbles n Bits, Milk-Bone and Meow Mix. The $15.5 billion business generates annual revenue of $8 billion.

The company yields 2.8% as of the most recent close, which is more than twice the average yield of 1.3% for the S&P 500 Index. The current yield is also superior to the stocks 10-year average yield of 2.6%.

In addition to a market-beating dividend yield, Smucker offers a high dividend growth rate compared to many of its peers. The companys dividend has a compound annual growth rate of nearly 7% for the last 10 years. Shareholders received a higher than usual dividend increase of 10% for the payment made on Sept. 1, 2021, extending Smuckers dividend growth streak to 24 consecutive years. This puts the company one year shy of Dividend Champion status.

The payout ratio makes it likely that Smucker reaches this milestone and beyond. The new annualized dividend amounts to $3.96. Analysts expect the company will earn $8.58 in fiscal year 2022, which ends April 30, giving Smuckers a projected payout ratio of 46%. This nearly matches the 10-year average payout ratio of 45%.

Smucker performed very well during the last recession as earnings per share grew a total of 39% from 2007 through 2009, while the dividend increased 19%. Looking at the companys results would make it seem as if this period of time wasnt marked by a global financial crisis.

Shares trade at 16.7 times earnings estimates for fiscal year 2022. For comparison purposes, the stock has a 10-year average price-earnings ratio of 17.6, which would make shares undervalued compared to its own history.

The GF Value chart says the stock is ahead of its intrinsic value.

2 Food Stocks Serving Up Deliciously High Dividend Yields
2 Food Stocks Serving Up Deliciously High Dividend Yields

With a recent closing price of $143.35 and a GF Value of $120.34, Smucker has a price-to-GF Value of 1.19.

Kellogg

Kellogg Co. (NYSE:K) is a top food name in its own right, holding such popular brands as Kelloggs cereal, Pop-Tarts and Eggo waffles. While probably best known for its breakfast brands, the company receives more than half of its revenue from non-breakfast items, such as Pringles, Cheez-It, Morningstar Farms and Club crackers.

Kellogg is yielding 3.5%, close to three times the yield for the market index. The stock has long been a high-yielding name, but the current yield is better than the 10-year average of 3.2%. This would be the third-best yield of at least the last 15 years if averaged for all of 2022.

The high yield helps to compensate for the low dividend growth rate of just over 3% for the last 10 years. The recent trend has been a 1 cent or 2 cent per share per quarter raise, including the 1.8% increase that was given for the June 15 payment. Kellogg has a dividend growth streak of 17 years.

The company distributed $2.31 of dividends per share in 2021. With analysts expecting $4.13 of earnings per share for the year, Kellogg has a projected payout ratio of 56%. This is in the vicinity of the 10-year average payout ratio of 52%.

Kellogg also saw solid results during the Great Recession as earnings per share grew 14.5%. The companys dividend was raised 19% during this period.

The company has a forward price-earnings ratio of 16.1, a slight discount to the long-term average valuation of 16.7 times earnings.

Shares are trading near the GF Value.

2 Food Stocks Serving Up Deliciously High Dividend Yields
2 Food Stocks Serving Up Deliciously High Dividend Yields

Kelloggs recently traded at $66.60. With the GF Value at $65.56, the stock has a price-to-GF Value of 1.02 today.

Final thoughts

Food stocks dont often get much attention from the investing media as these names sell everyday products that dont generate extremely high growth rates.

On the other hand, stocks in this industry tend to have recession-resistant businesses, lengthy dividend growth track records and provide generous dividend yields that are well protected.

For investors looking for safe and reliable income from defensive investments, Smucker and Kellogg could be two names to consider for purchase.

This article first appeared on GuruFocus.