Erin Lash: The consumer products landscape has long offered income-hungry investors appetizing alternatives, but what names top the list at present?
For one, Campbell Soup, which trades at a 10% discount to our $45.50 fair value estimate but boasts a 3.5% dividend yield. We view Campbell’s recently inked separation from its Fresh business favorably. Further, the firm is still pursuing the sale of its international operations, which primarily consist of more desirable snacking brands that could garner a low-single-digit multiple to sales, or around $2 billion to $3 billion. Beyond reducing its leverage, we also believe that a more narrowly focused brand mix should enable Campbell to more effectively hone its resources (both financial and personnel) on the highest-return opportunities, which is essential as Campbell goes to bat against other nationally branded operators, lower-priced private-label fare, and small niche peers daily. Further, we contend that these efforts stand to support mid-single-digit annual growth in the dividend over the next decade with a payout ratio hovering around 50%, making this wide-moat name an attractive dividend play in the consumer products space.
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Erin Lash does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.