If you are looking for growth stocks that are not very volatile and pay a dividend, you should look for growth stocks in the food-processing sector. Stocks in this sector can give you a fairly decent return over the long term without a lot of risk.
Maple Leaf Foods Inc. (TSX:MFI) and Premium Brands Holdings Corp. (TSX:PBH) are interesting choices.
Since they operate in a defensive sector, Maple Leaf and Premium Brands stocks are relatively safe buys. People are buying meat at the grocery store regularly, no matter what happens in the economy.
Let’s see what make those two food stocks good buys for a long-term investor.
Maple Leaf Foods Inc.
Maple Leaf is a major Canadian consumer protein company based in Toronto. This company produces prepared meats, lunch kits snacks, and fresh pork, and poultry products sold under various brands.
The share price performance is very impressive, showing a five-year compound annual growth rate of return (CAGR) over 26%. The stock is up by 24% since the beginning of the year.
Maple Leaf has been raising its dividend each year since 2014. In February 2017, the company raised its dividend by 22% to $0.11 quarterly. This gives it a dividend of $0.44 annually and a yield of 1.3%.
Maple Leaf’s stock is less volatile than the market, showing a beta of only 0.57.
In March 2017, Maple Leaf bought Lightlife Foods Inc., a leading U.S.-based manufacturer of refrigerated plant-based protein foods, for US$140 million in cash. This acquisition is in line with Maple Leaf’s strategic growth plan and its commitment to sustainability.
Since consumers are eating less meat, Maple Leaf is well prepared to face this growing trend by offering more meatless products.
In the second quarter, Maple Leaf reported net earnings of $37.3 million, or $0.28 per share, representing 19% and 22% increases, respectively, as compared to the second quarter of 2016.
On an adjusted basis, Maple Leaf earned $0.41 per share, up 28% from a year earlier.
Analysts estimate that earnings will grow at a rate of 13% on average next year. A growth rate of 14% annualized is expected for the next five years.
Premium Brands Holdings Corp.
Premium Brands is a specialty food company based in British Columbia. This company makes processed meats and packaged sandwiches.
This stock has an amazing performance record, showing a five-year CAGR of 44%. The share price is up by 50% since the beginning of the year.
Premium Brands has been raising its dividend each year since 2013. In March 2017, the company raised its dividend by 10.5% to $0.42 quarterly. This gives a dividend of $1.68 annually and a yield of 1.6%.
Premium Brands’s stock is less volatile than the market, showing a beta of only 0.45.
Last month, Premium Brands acquired a 100% interest in Skilcor Food Products Inc., an Ontario-based manufacturer of cooked back ribs and other protein products. Skilcor generates sales of approximately $27 million and operates in a specially designed 34,000-square-foot facility.
Premium Brands also acquired Leadbetter Foods Inc., an Ontario-based manufacturer of specialty bacon, fresh and frozen burgers, and portion-cut steaks. Leadbetter generates sales of about $55 million and operates two production facilities in Orillia, Ontario.
Those acquisitions are in line with Premium Brands’s objective of building a leading specialty protein platform in central Canada.
The price of the two transactions weren’t disclosed. They will be funded through the company’s existing bank facilities and are expected to be immediately accretive to its annual earnings per share and free cash flow per share.
In the second quarter, Premium Brands reported earnings of $26.7 million, or $0.90 per share, representing 45% and 41% increases, respectively, as compared to the second quarter of 2016.
On an adjusted basis, Premium Brands earned $0.94 per share, up 42% from a year earlier.
The food company’s earnings are expected to grow by 27% next year and by 24% for the next five years.
