Despite signs of inflation easing, the Federal Reserve recently indicated that interest rates could hike to 5.1% in 2023. The policymakers also revised their outlook for economic growth in 2023 downward from the 1.2% forecast in September to 0.5%.
Moreover, U.S. business activity contracted further in December as new orders slumped to the lowest level in just over 2-1/2 years. These concerning economic data have reinstilled recessionary fears among investors.
While the inflation eased last month, food prices rose 0.5% in November and were up 10.6% from a year ago. In addition, food stocks generally perform relatively well during inflation due to the inelastic demand for these products.
As recession fears surge, fundamentally strong stocks Kellogg Company (K) and Flowers Foods, Inc. (FLO) might be ultra-safe investments. Moreover, these companies have a history of consistent dividend payouts.
Kellogg Company (K)
K manufactures snacks and convenience foods in 21 countries and markets its products in 180 countries. Its principal products include crackers, crisps, savory snacks, toaster pastries, cereal bars, granola bars and bites, ready-to-eat cereals, frozen waffles, veggie foods, and noodles.
On December 12, K announced that its Board of Directors had approved a share repurchase authorization of up to $1.5 billion, under which the company may buy back its shares at its discretion from January 1, 2023, through December 31, 2025.
The company uses buybacks to offset dilution from options exercises and other stock grants, as well as to return cash to shareowners opportunistically.
On October 28, K declared a dividend of $0.59 per share on the common stock of the company, payable on December 15, 2022. This is the 392nd dividend that K has paid since 1925.
Its annual dividend of $2.36 translates to a 3.31% yield. Over the last five years, PEP’s dividend payouts have grown at a 2% CAGR. It has a 4-year average dividend yield of 3.58%. Moreover, the company has been raising its dividend for the past 18 years.
K’s net sales came in at $3.95 billion for the third quarter that ended October 1, 2022, up 8.9% year-over-year, while its organic net sales rose 13.4% year-over-year to $4.11 billion. The company’s adjusted gross profit increased 4.1% year-over-year to $1.22 billion, and its adjusted EPS amounted to $1.01.
K’s revenue is expected to increase 6.4% year-over-year to $3.64 billion in its fiscal fourth quarter ending December 2022. Similarly, its EPS is likely to gain 2.5% year-over-year to $0.85 in the same quarter. Moreover, the company has a remarkable earning surprise history as it surpassed its EPS and revenue estimates in each of its trailing four quarters.
The stock has gained 10.7% year-to-date to close the last trading session at $71.29. K has a 24-month beta of 0.24.
K’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
K also has a B grade for Quality and is ranked #29 out of 83 stocks in the B-rated Food Makers industry.
Beyond what is stated above, we’ve also rated K for Value, Growth, Momentum, and Stability. To access more of K’s POWR Ratings, click here.
Flowers Foods, Inc. (FLO)
FLO operates as a producer and marketer of packaged bakery products in the United States. The company offers its products under Nature’s Own, Dave’s Killer Bread, Wonder, Canyon Bakehouse, Mrs. Freshley’s, and Tastykake brand names.
On December 13, FLO announced a definitive agreement to acquire Papa Pita Bakery, a manufacturer and distributor of baked goods. The acquisition aims to expand FLO’s presence and is expected to be completed in the first quarter of 2023.
On November 18, FLO declared a quarterly dividend of $0.22 per share, reflecting an increase of 4.8% from the same quarter last year. The dividend is payable to shareholders on December 16, 2022.
The company’s annual dividend of $0.88 per share yields 3.07% at the current price. It has a 4-year average dividend yield of 3.32%. FLO’s dividends grew at 5.1% CAGR over the past three years and 5.4% CAGR over the last five years. The company has had nine consecutive years of dividend growth.
FLO’s sales increased 12.7% year-over-year to $1.16 billion in the fiscal third quarter ended October 8, 2022. Its adjusted EBITDA grew 1.6% from the same period last year to $120.41 million, while its adjusted EPS was consistent with the prior-year quarter at $0.30.
Analysts expect FLO’s revenue and EPS for the quarter ending December 2022 to increase 12.4% and 17.2% year-over-year to $1.11 billion and $0.23, respectively. Moreover, FLO has surpassed consensus EPS estimates in three of the trailing four quarters, which is impressive.
FLO has gained 16.3% over the past six months to close its last trading session at $28.69. It has a 24-month beta of 0.32.
Its strong fundamentals are reflected in its POWR Ratings. FLO has an overall rating of B, equating to Buy in our proprietary rating system.
It has a B grade in Growth and Quality. The stock is ranked #18 in the same industry.
In addition, FLO’s ratings for Value, Momentum, Stability, and Sentiment can be seen here.
K shares were trading at $72.26 per share on Monday morning, up $0.97 (+1.36%). Year-to-date, K has gained 15.99%, versus a -18.75% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
2 Ultra-Safe Stocks to Buy as Recession Fears Grow StockNews.com
