McCormick (MKC)

[Kerim]

A few of you have mentioned MKC in passing as a good DG stock to consider, but I don't think we've ever focused on it much. I was just having a look at it and would appreciate people's thoughts.

It is a nice straightforward company in a nice straightforward business. History and metrics are solid. Earnings growth has been steady, though not spectacular. Same with dividend growth. (Been raising the dividend for 29 years.) Payout ratio is below 50 percent. P/E is around 22/23 -- higher than I like to pay, but given the valuations assigned to consumer staple companies right now, it appears very reasonable in contrast. The yield is an ok but unexciting 2.11 percent.

In addition to very solid performance, there is with luck the tailwind of continued international expansion. Hard to get really excited about it, but could be a solid contender.

What do you think?

And does a spice company have a moat to speak of?

[rapidacid]

Definitely plausible for most DGI portfolios but it's likely to never be the best idea at any given time. 2.X% yield and 9.X% 5 year div growth average is kinda like the utility infielder of the dividend world.

Re: the moat, here's what M* has to say

"McCormick's unparalleled scale and pricing power have earned the firm a wide economic moat. With leading brands such as McCormick, Lawry's, and Old Bay, the firm controls at least half of the market for spices and seasonings in North America and is 4 times the size of its next-largest branded global competitor. McCormick's dominance in its category is marked by a unique feature: its private-label presence. Because the firm is the largest producer of private-label spices and seasonings in North America, the pricing threats many consumer product firms face are limited for McCormick, ensuring that no other company gains enough scale to significantly affect the pricing of the firm's branded offerings. In addition, we think that by offering these lower-priced products, McCormick enhances its relationship with retailers. This defensive incumbent position is very profitable, as McCormick has consistently posted returns on invested capital in the teens, well above our cost of capital estimate--supporting our take that the firm maintains a wide economic moat."

I personally would've like to see a lot more shares repurchased over the last 10 years. I don't own it, but it's perennially on my to do list.

Also thought this was interesting:

"Finally, two of the firm's largest customers (PepsiCo and Wal-Mart) each account for about 11% of consolidated sales, which could place McCormick in a vulnerable bargaining position."