In my mind, portfolio safety and consistency of equity market returns are paramount. This is a basic portfolio management principle, and I like to see consistent earners as core positions in any equity market portfolio.
This doesn’t mean there isn’t room for more speculative stocks, but investing is different than risk-capital speculating.
Consistent earnings growers and dividend paying stocks should be the foundation of an equity market portfolio geared for long-run returns. Dividends can be spent, reinvested, or, better yet, placed in an automatic dividend reinvestment program. The numbers really do add up over time, especially among those companies with a history of increasing their annual dividends throughout the years.
One mature enterprise with a very good long-term track record of delivering positive returns to shareholders is The Hershey Company (NYSE:HSY); it’s the kind of position that long-term investors may wish to consider when it’s down.
The business of chocolate and confections is a good one, and this company has a long history of increasing earnings and dividends. What Hershey is not is a fast-growing company where you want to see double-digit sales growth.
But while this well-known brand may be a slow grower, it offers consistency, which in today’s world, is a very valuable trait. (See “Three Steady Stocks to Balance High-Flyers & Boost Your Returns.”)
That doesn’t mean Hershey’s stock won’t go down commensurate with the broader equity market, but the business is solid and it’s highly likely to still be growing when other industries, companies, and capital markets fail. The company’s 25-year long-term stock chart is featured below:
By slow growth, the company’s 2014 first quarter saw total sales increase 2.4% and earnings grew 4.4% (4.7% in diluted earnings per share). Clearly, this company hasn’t reinvented the wheel.
For all of this year, management expects total sales to grow between five and seven percent, and this includes the impact of foreign currency exchange rates (which is a risk with multinational corporations).
According to the company, new products are where the growth is. This month, Hershey will launch “York Minis” and “Hershey Spreads,” which are instant consumables. In the third quarter, the company will offer “Ice Breakers Cool Blast Chews” and “Brookside Crunchy Clusters” to the marketplace. And in its international markets, the company plans a broader roll-out of its “Reese’s Peanut Butter Cups” in the bottom half of the year.
On top of all this, margins are set to expand, although the cost of dairy is always a worry with this business.
But, even with mid-single-digit sales growth being the expectation this year, bottom-line earnings are where the good news should be.
Management forecasts 12% to 13% GAAP earnings-per-diluted-share growth over 2013, which is pretty decent, all things considered. Combined with the company’s dividend (the current yield is approximately two percent), that’s a good expected return from a mature enterprise with staying power.
In a slow-growth world, it’s a business like Hershey that will deliver the goods where others don’t. Consistency is a valuable attribute in the equity market; very few companies provide it.
Disclaimer: Dear Reader: There is no magic formula to getting rich. Success in investment vehicles with the best prospects for price appreciation can only be achieved through proper and rigorous research and analysis. The opinions in this e-newsletter are just that, opinions of the authors. Information contained herein, while believed to be correct, is not guaranteed as accurate. Warning: Investing often involves high risks and you can lose a lot of money. Please do not invest with money you cannot afford to lose.