Whether a stock is a buy always depends on the specific purpose of the investment. There are many reason to invest in equities. A retiree may seek relatively safe income from dividends, or a long-term investor may be looking to build wealth, hoping to beat the overall market returns. A parent might even just want to introduce investing to children by giving them shares of a company they know and love.
McCormick (NYSE:MKC), the maker of well-known spices, sauces, and flavorings, could check all of those boxes. Over the last three- and 10-year time periods, McCormick stock has outpaced the S&P 500 in total returns by the meaningful margins of seven and 57 percentage points, respectively. Total returns include dividends, which McCormick has paid for 97 consecutive years. The spice maker has also increased its dividend payout every year for the last 35 years, putting it in the elite group of Dividend Aristocrats.
Though the company has been around for 132 years, McCormick isn’t just set in its old ways. It is constantly looking to grow, and has made several notable acquisitions in recent years. It added to its lineup of brands with the acquisition of Reckitt Benckiser‘s food division in August 2017. That brought Frank’s RedHot, French’s, and Cattlemen’s brands under the McCormick umbrella, which it integrated with existing brands to grow its offerings. After the acquisition, the company created a limited-edition French’s Mustard Ice Cream, a Frank’s RedHot Wingman “Saucy Support Line” for football game tailgates, and reintroduced a limited-edition Old Bay Hot Sauce, utilizing another of its well-known brands.
In November 2020, McCormick bought the parent of Mexican-made hot sauce Cholula for $800 million in cash, adding another popular sauce brand. And just prior to year-end, it announced the $700 million acquisition of FONA International to add products in the natural flavorings niche, grow manufacturing capacity, and expand its technology platform. The move to advance its health and wellness portfolio shows the company works to support current trends.
Investing with less stress
McCormick’s business is a balance of consumer brands and commercial food service solutions. For its full fiscal year 2020 ended Nov. 30, 2020, overall sales grew 5%. The growing home cooking trend led to 10% growth in its consumer segment, helping to offset a single-digit decline in the commercially oriented flavor solutions segment, which suffered with restaurant closures and restrictions.
Now that a recovery is beginning to take hold in the commercial food markets, McCormick is seeing strength in both segments. For its fiscal 2021 first quarter, overall sales grew 22%, with positive contributions from both sides of the business. McCormick chairman and CEO Lawrence E. Kurzius said in a statement, “Our growth in the first quarter was driven by base business, new products, and acquisitions — our three long-term growth drivers.” The strengthening business prompted the company to increase its sales outlook for full-year 2021 to an expected growth rate of 8% to 10%, and it also raised its operating profit and earnings-per-share growth outlook.
Win by hitting singles
McCormick isn’t likely to be a stock that doubles in a year like an aggressive growth stock could. But that potential comes with risk that investors in McCormick can avoid. Past results show it can solidly beat the market while continuously growing the income it provides shareholders through an increasing dividend.
Whether it’s for some relatively safe income, steady long-term growth, or even to introduce a child to investing with brands found in the home kitchen, McCormick makes for a solid addition to any diversified portfolio.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. 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.