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Mondelez vs. Hershey: Which Has the Sweetest Dividend?

Erin Lash analyzes which of the two firms is the best option for income investors.

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Erin Lash: With the holidays in full swing, it seems that everywhere you turn, sweets abound. But for income investors looking to satisfy their sweet tooth, which is the better option: Mondelez or Hershey?

While Mondelez shares trade at a more than 10% discount to our $52 fair value estimate, we don't believe its top priority for cash will center on boosting the income stream paid to shareholders. In this vein, we forecast Mondelez will increase its shareholder dividend in the high single-digit range on average annually through fiscal 2027, but this implies a payout ratio of only around 40%. Rather, we surmise that despite remaining on the sidelines for the better part of the last few years, the firm's prime use of cash will be to invest behind its brands (in the form of research, development, and marketing) as well as acting as a consolidator in the space, with an eye toward expanding its footprint into untapped markets--such as Indonesia and Germany--or other adjacent snacking categories. 

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Erin Lash does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.