Perhaps it’s surprising to some investors, but Premium Brands Holdings (TSX:PBH) has a long history of operation. Founded in 1917 and rebranded in 2000, this century-old company offers specialty food manufacturing and differentiated food distribution. Today, it operates across Canada and the United States, servicing over 22,000 customers with premium products like processed meats, deli items, sandwiches, wraps, pasta, and baked goods.
While longevity alone doesn’t guarantee stock growth, here are three compelling reasons why Premium Brands might be a good addition to your diversified portfolio today.
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Persistent growth with promising prospets
Since at least 2020, Premium Brands has been growing its revenue and expanding its operating margin every year. The company’s revenue has grown nearly 12% annually, while its operating margin has expanded from 4.4% to 5.7%. From 2020 to 2023, the stock also increased its adjusted earnings per share (EPS) by 9.7%.
While growth has been persistent, it hasn’t been without bumps. Premium Brands has experienced periods of rapid growth followed by slower years, yet this cyclical nature has contributed to an overall upward trend. Over the last decade, the company achieved a compound annual growth rate (CAGR) of 14.8% in adjusted EPS, showing its long-term potential to continue expanding.
A dividend you can rely on
Who doesn’t love getting paid to wait? At the recent price of $78.51 per share, Premium Brands offers a healthy dividend yield of 4.3%. This is competitive compared to the current yields on one-year Guaranteed Investment Certificates (GICs), which hover around 4%. For income-focused investors, Premium Brands could be an attractive income investment.
To highlight, Premium Brands has a strong track record of dividend stability. Since 2006, the company has consistently maintained or increased its dividend payouts, even during market downturns. With a 10-year dividend-growth rate of 9.6%, the company has shown its commitment to rewarding shareholders. If you’re looking for a steady income stream alongside potential capital gains, Premium Brands fits the bill.
Insider buying signals big things ahead
While the broader market may not be overly enthusiastic about Premium Brands stock currently, insiders are making a bold bet on their future. Last month, four of the company’s directors — including the chief executive officer and chairman — collectively purchased (directly, indirectly, or under their direction) $5.4 million worth of stock at an average price of $77.82 per share. This insider buying is a clear signal that those closest to the company believe in its future prospects, and it’s happening at a price that mirrors the current market price, offering investors a similar opportunity to build wealth.
This insider buying comes after years of significant capital investments in manufacturing capacity, which should lead to higher margins. As these investments mature, Premium Brands is positioned to reduce debt, increase free cash flow, and drive shareholder value in the coming years.
The Foolish investor takeaway
Premium Brands may not provide quick returns, but its growth prospects, reliable dividend, and insider buying make it a compelling buy for patient investors. The company is targeting $10 billion in sales and an adjusted EBITDA margin of 10% by 2027, signalling that it could deliver substantial returns over the next few years.
If you’re in it for the long haul, Premium Brands offers both solid income and growth potential. While the stock won’t turn around overnight, the 4.3% dividend yield and the company’s strategic initiatives provide plenty of reasons to hold on tight and invest like there’s no tomorrow.
