Updated on January 23rd, 2023 by Nathan Parsh
In order to become a Dividend Aristocrat, a company must have a strong brand and a dominant industry position. The Dividend Aristocrats are a group of 65 companies in the S&P 500 Index, with 25+ consecutive years of dividend increases.
With this in mind, we have created a list of all 66 Dividend Aristocrats.
You can download your free copy of the Dividend Aristocrats list, along with important financial metrics such as price-to-earnings ratios and dividend yields, by clicking on the link below:
A perfect example of a Dividend Aristocrat with an industry-leading brand is consumer products company McCormick & Company (MKC). McCormick has paid dividends each year since 1925 and has increased its dividend for 36 years in a row.
Its dividend growth streak is due to its high-quality business. McCormick is the global leader in food spices, seasonings, and flavors. It has grown its leadership position organically and also through acquisitions. This has fueled McCormick’s dividend growth for many years and will continue to do so in the years to come.
Business Overview
McCormick was formed in 1889, when founder Willoughby M. McCormick started making flavors and extracts in his cellar, which he then sold door-to-door. At first, the business grew at a gradual pace. In 1896, McCormick entered spices by issuing its first McCormick’s Cookbook. Over time, the company has steadily built itself into the leading spices and seasonings company in the world.
McCormick & Company produces, markets, and distributes seasoning mixes, spices, condiments, and other products to customers in the food industry. Major brands include McCormick, Lawrys, Stubb’s, Club House, Ducros, Schwartz, Kamis, Kohinoor, Zatarains, Thai Kitchen, and Simply Asia.
It has a market capitalization of $20.8 billion, which makes it a large-cap stock.
McCormick released third-quarter earnings results on October 6th, 2022.
Source: Investor Presentation
For the quarter, revenue grew 3.2% to $1.6 billion, coming above estimates by $10 million. Adjusted earnings-per-share fell 13.8% to $0.69 for the quarter and was $0.03 less than expected.
Results for the two segments were mixed for the period.
Source: Investor Presentation
The Consumer segment experienced sluggish growth, with sales up just 0.7%. Price increases of 10% were nearly offset by a 5.7% decline in volume and mix and a 2.7% headwind from currency exchange. Divestitures subtracted 0.9% from results as well. The Americas experienced 2.8% growth, Asia/Pacific improved 5.8%, and EMEA was lower by 12.7%.
Flavor Solutions, on the other hand, continues to rebound from the worst of the Covid-19 pandemic as sales increased 8.4% during the quarter. Pricing added 9.3% while volume and mix were up 0.8%. Currency acted as a 3.7% headwind to results. The Americas improved 9.2%, Asia/Pacific grew 4.8%, and EMEA fell 1.3%.
McCormick has guided towards adjusted earnings-per-share of $2.63 to $2.68 for fiscal 2022, which would be a 12.8% decline from the prior year at the midpoint of guidance.
Growth Prospects
Going forward, there is plenty of room for continued growth for McCormick, due to growth in the emerging markets, and also acquisitions. First, international growth is a strong catalyst for McCormick. The slow reopening of China following strict pandemic-related restrictions is already benefiting the company.
Higher demand for herbs and spices, as well as increased prices also contributed to sales growth in the region. Separately, acquisitions are a major part of McCormick’s growth strategy.
In 2018, McCormick acquired Frank’s RedHot and French’s as part of a $4.2 billion purchase of RB Foods, the food division of consumer products giant Reckitt Benckiser (RGBLY). This was the largest deal in McCormick’s history, and is already a driver of growth for the company.
McCormick has utilized its leadership position in industry to quickly expand these top brands globally. Frank’s RedHot is the leading hot sauce brand in the U.S., while French’s leads the mustard category. The common theme within McCormick’s M&A strategy is that it seeks out top brands that lead their respective categories, that can be easily scaled up.
This theme is clear once again with the recent acquisitions of Cholula Hot Sauce and FONA International. First, in November 2020 McCormick acquired Cholula, the premium Mexican hot sauce brand, for $800 million. This acquisition fits perfectly into McCormick’s strategy of acquiring top-quality brands and quickly scaling them.
McCormick followed this up with the December 2020 acquisition of FONA International, a leading manufacturer of clean and natural flavors with customers across the food, beverage, and nutritional markets. McCormick acquired FONA International for $710 million in cash.
We expect that the company’s various acquisitions, combined with its own strong brands, will result in strong earnings-per-share growth going forward. We estimate that McCormick can grow earnings at a rate of 9% per year through fiscal 2028.
Competitive Advantages & Recession Performance
The two most important competitive advantages for McCormick are its brand strength and global scale. McCormick is the top brand in the global spices and seasonings industry, which is expected to grow for the next five years.
As a result, this gives McCormick leverage with retailers and pricing power. These qualities help the company generate consistent profits each year, even when the economy enters recession.
McCormick managed to grow earnings-per-share each year during the last recession. Earnings-per-share during the Great Recession are below:
- 2007 earnings-per-share of $1.92
- 2008 earnings-per-share of $2.14 (11% increase)
- 2009 earnings-per-share of $2.34 (9.3% increase)
- 2010 earnings-per-share of $2.65 (13% increase)
As you can see, McCormick & Company grew earnings-per-share every year through the Great Recession. Not only that, the company averaged double-digit annual growth each year, which was highly impressive and a very rare accomplishment, even for a Dividend Aristocrat.
Valuation & Expected Returns
At the midpoint of full-year guidance, McCormick expects adjusted earnings-per-share of roughly $2.66 this year. As a result, the stock trades at a price-to-earnings ratio of 29.7. This is above our fair value price-to-earnings ratio of ~23.
McCormick’s valuation multiple has expanded considerably in recent years, as the company has turned in strong earnings growth. Still, the stock appears to be significantly overvalued. If the stock reverted to our target P/E by 2028, then valuation would be a -5.0% headwind to annual returns over this time period.
Fortunately, shareholder returns will be derived from expected earnings growth and dividends. The company’s strong brand and multiple catalysts for future growth should add up to higher growth as well.
Total annual returns could be 5.8% per year over the next five years, stemming from earnings growth of 9% and a starting dividend yield of 2% offset by a 5% valuation headwind.
That said, McCormick is a high-growth dividend stock. The company has increased its dividend by ~9% per year over the past 10 years. It recently increased its quarterly dividend by 5.4% in November 2022. McCormick has a healthy dividend payout ratio of 56%, based on expected fiscal 2022 adjusted earnings-per-share. This means McCormick should continue its annual dividend increases for many years to come.
Final Thoughts
McCormick dominates the spices and seasonings category. Its strong brands provide the company with high-profit margins and growth opportunities, both in the U.S. and the international markets.
McCormick has a market beating dividend yield of 2% and has a very strong dividend growth history. The company should be able to lift the dividend each year, likely at a mid-to-high single-digit annual rate.
That being said, we believe that the stock is a hold right now due to projected returns. It has a premium valuation multiple, and while it could be argued that a high-quality company such as McCormick deserves a higher stock valuation, we have a mediocre expected rate of return.
That said, we would be buyers of McCormick on a meaningful pullback in the share price, which would result in a lower valuation and a higher dividend yield.
Additionally, the following Sure Dividend databases contain the most reliable dividend growers in our investment universe:
- The Dividend Contenders List: 10-24 consecutive years of dividend increases.
- The Dividend Challengers List: 5-9 consecutive years of dividend increases.
- The Dividend Champions: Dividend stocks with 25+ years of dividend increases, including those that may not qualify as Dividend Aristocrats.
- The Dividend Achievers: dividend stocks with 10+ years of consecutive dividend increases.
- The Dividend Kings: considered to be the ultimate dividend growth stocks, the Dividend Kings list is comprised of stocks with 50+ years of consecutive dividend increases
If you’re looking for stocks with unique dividend characteristics, consider the following Sure Dividend databases:
- The Complete List of Monthly Dividend Stocks: stocks that pay dividends each month, for 12 payments over the year.
- The Blue Chip Stocks List: this database contains stocks that qualify as either Dividend Achievers, Dividend Aristocrats, or Dividend Kings.
The major domestic stock market indices are another solid resource for finding investment ideas. Sure Dividend compiles the following stock market databases and updates them monthly: