We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.
-- Warren Buffett
Billionaire Warren Buffett has been around long enough to know that occasional dips in stock prices will happen. That's why he has used them to his advantage to buy shares of great companies when Wall Street is throwing in the towel.
It's almost always a great buying opportunity when a company is suffering from external, as opposed to internal, problems. Weak retail spending trends and inflationary costs are pressuring financial results across some of the strongest consumer brands right now.
Shares of Kraft Heinz (NASDAQ: KHC), Hershey (NYSE: HSY), and Starbucks (NASDAQ: SBUX) are down between 30% to 65% off their previous highs, but that also means they are offering their highest dividend yields in years. Here's why investors shouldn't hesitate to add these dividend stocks to their portfolio.
1. Kraft Heinz forward dividend yield: 4.51%
Consumer staples is a great sector in which to find solid dividend payers for the long term. Kraft Heinz owns several powerhouse brands, such as Oscar Mayer, Philadelphia, Velveeta, and Maxwell House, in addition to its namesake cheese and ketchup brands. These brands produce steady profits that allow the company to pay out 70% of its earnings in dividends.
However, second-quarter net sales growth was again lower than expected. Through the first half of 2024, adjusted sales (excluding currency changes) were down 1.5% year over year, which the company attributes to macroeconomic weakness. The soft sales trends recently sent the stock down more than 65% off its previous highs to a 52-week low of $30.68.
Importantly, the company's cost discipline has kept adjusted earnings per share roughly flat this year compared to 2023. This means investors can count on the company to keep depositing cash in their accounts every quarter through regular dividend payments.
Management is focusing on what they can control. It made some changes to capital spending to boost free cash flow by $100 million in the first half of 2024. This is also enabling the company to continue investing in new products and marketing for long-term growth. Kraft Heinz still has great long-term potential outside North America in emerging markets.
The economy will always experience rough patches, but this is historically the best time to buy consumer staples stocks. Kraft Heinz offers a high forward dividend yield of 4.51%, which investors are usually not going to get in a roaring economy.
2. Hershey forward dividend yield: 2.78%
Another top consumer staples brand that offers a high yield is leading chocolate maker Hershey. Higher cocoa prices are pressuring the company's earnings growth, which is the main cause for the stock's decline this year. The stock is currently down 30% from its previous highs and recently hit a 52-week low of $178.82.
Hershey got off to a strong start to the year, with sales up 9% year over year in the first quarter, but weak consumer spending trends are expected to weigh on sales the rest of the year. Analysts expect sales to be up just 2.4% this year and 3.5% next year.
Higher supply costs will also limit earnings, which management expects to be flat over 2023. But Hershey's roots go back to 1894, so it survived the Great Depression. It's a good bet that people will still be buying Hershey's chocolate in another century, but now investors can buy the stock at a cheaper price relative to its dividend payments. Based on its current quarterly payout, the stock's forward yield is 2.78%.
Management noted in the first quarter that its seasonal products for Valentine's Day and Easter led to market share gains. This is evidence that the brand continues to be top-of-mind when people shop for gifting occasions, which speaks to Hershey's brand power and explains why the stock is a great buy at these lower share prices.
Hershey paid out 46% of its earnings in dividends over the last year. The stock has offered a 2.5%-plus yield just three times in the last 15 years, and each time the stock didn't stay down long.
3. Starbucks forward dividend yield: 2.88%
Starbucks is another top brand that is dealing with the same negative trends in the U.S., but it's also dealing with lower-priced competitors in China -- an important market for the brand. The stock is currently down 40% from its previous peak, and has hit a 52-week low of $71.55.
In the most recent quarter, global comparable store sales (or comps) declined 3% year over year, with North America down 2% and China down 14%. China has experienced rough economic conditions since the pandemic, so investors shouldn't look at these numbers as resembling normal operating conditions. Starbucks was reporting double-digit growth just a year ago, including a strong 46% comp sales increase in China. It will grow again.
Meanwhile, management is focused on maintaining its premium brand position by not reducing prices to drive sales. This is good for dividend investors, since it is keeping profits up, while new store openings are maintaining a slight increase in revenue.
The most telling indicator of the brand's strength is the growth in Starbucks' membership rewards program, which rose 7% year over year in the U.S.
Investors can expect Starbucks to navigate through the near-term challenges just fine. It paid out 60% of its earnings in dividends over the last year, bringing its forward yield up to an all-time high of 2.88%. That is very attractive considering the company's potential for double-digit annualized earnings growth over the long term.
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John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Starbucks. The Motley Fool recommends Hershey and Kraft Heinz. The Motley Fool has a disclosure policy.
3 Magnificent Dividend Stocks to Buy That Are Near 52-Week Lows was originally published by The Motley Fool