Maryland-based McCormick (MKC) was founded in 1889 and has grown to become one of the largest spice and flavoring companies in the world. It is a dividend aristocrat, and a rock-solid long-term investment with an impeccable dividend history, asserts Chloe Lutts Jensen, expert Cabot Dividend Investor.
In addition to their eponymous line of spices, McCormick makes condiments, stocks, oils, recipe mixes, salad dressings, baking ingredients and more. Consumer products make up about 62% of sales.
McCormick’s consumer brands include Old Bay, Zatarain’s, Thai Kitchen, Club House and Lawry’s. Last year, its added the French’s and Frank’s RedHot brands to its portfolio. McCormick is international, but the Americas are the company’s largest market, making up 68% of sales.
The remainder of sales are to food service and food and beverage companies, which buy commercial versions of the above products, as well as “custom flavor solutions” that flavor many of the packaged foods you eat, from chips to chocolates.
Selling spices is a steady business, and McCormick’s revenues have risen steadily in each of the past 10 years. EPS declined slightly in 2013 and 2015, but grew in every other year, often by double digits.
A major reason why I’m recommending MKC now is analysts’ strong estimates for the next few years. MKC is expected to report 17% earnings growth this year and 8% growth next year, supported by 13% and 3% revenue growth. Longer term, analysts expect EPS growth to average 11% per year over the next five years.
McCormick’s fiscal year starts in December, so the company already reported second-quarter earnings at the end of June. The company’s next earnings report will likely be released toward the end of September.
McCormick pays quarterly dividends, and currently yields 1.8%. The company has paid dividends since 1925, and has increased the dividend every year for 31 straight years. Over the past decade, McCormick has increased the dividend by an average of 9% per year, an impressive growth rate to sustain over such a long time.
The stock broke out to a new all-time high after reporting stellar second-quarter earnings. The stock has been consolidating since. Even after last month’s jump, the stock is still reasonably valued, with a P/E of 25 and a forward P/E ratio of 24. If money continues to rotate into consumer staples stocks in the second half of the year, MKC’s breakout could mark the start of a strong new uptrend for the stock.
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