TFSA Investors: Recent Trends Make This Dividend Stock a Buy in August

Maple Leaf Foods Inc. (TSX:MFI) stock fell after Q2 results, but the company is in a good position going forward.

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Maple Leaf Foods Inc. (TSX:MFI) stock had dropped nearly 5% week over week as of close on August 1. Shares have plunged double digits in 2018 so far, as the company has undergone a brand renovation to achieve long-term brand and category growth. This change represents a response to broader changes that are occurring in the food industry.

In May, Maple Leaf announced its brand renovation, and this included a commitment that all of its products would be made with premium meat or real, simple, and natural ingredients. Products will contain no artificial preservatives, flavours, colours, or sweeteners. Mindfulness has emerged as a significant trend in the food industry, led by the millennial consumer. This consumer attitude attempts to understand everything and anything about a food or beverage company and will lend loyalty to the brand that aligns with its values.

This trend is borne out in surveying as well. A poll conducted by Innova Market Insights found that seven out of 10 U.S. and U.K. consumers wanted to know and understand an ingredient list. Consumers are demanding that companies adopt values of social conscientiousness, health and wellness, and a commitment to nutrition.

In February 2017, Maple Leaf acquired Lightlife Foods, which produces vegetarian and vegan meat substitutes. Last year I’d discussed how Maple Leaf was positioning itself to take advantage of a move to vegetarian and vegan diets among consumers. Once again, younger consumers are driving this change.

According to the McCain Foodservice 2018 Casual Dining Report, the number of adults that reported following a vegan diet has increased 500% since 2016 in the U.K. A poll conducted for Dalhousie University in 2018 saw 7.1% of respondents identify as vegetarian, and 2.3% identify themselves as vegan. It also found that Canadians under the age of 35 are three times more likely to identify as vegetarians or vegans. This data has only recently been collected, so it is impossible to ballpark growth rates, but the rising tendencies among younger consumers illustrates how important it is for companies to offer vegetarian and vegan alternatives.

Maple Leaf released its second-quarter results on July 26. The company reported challenging market conditions largely due to the current trade environment. Back in March, I’d discussed how Maple Leaf may be in a good position to take advantage of China, the largest pork consumer in the world, turning away from U.S. pork through retaliatory tariffs.

Sales fell 1.8% year over year to $909.2 million, climbing 1.1% on an adjusted basis. The company reported sales growth in sustainable meats and the expansion of plant protein in the United States. The board of directors also approved a quarterly dividend of $0.13 per share, representing a 1.5% dividend yield.

Maple Leaf has positioned itself to take advantage of significant trends in the industry that are being driven by younger consumers. The company is facing headwinds in the near term, but this also presents an opportunity to add the stock at a decent value. It is well worth an addition to a TFSA with its growth potential and solid dividend yield.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Ambrose O'Callaghan has no position in any of the stocks mentioned.

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