What are we screening for?
Top U.S.-listed consumer staples stocks with reliable dividend payouts.
With the surprise announcement from the Organization of the Petroleum Exporting Countries (OPEC) and its allies to reduce oil production, markets were dealt another blow of uncertainty as we move into the second quarter. The S&P 500 was relatively flat on this news, driven mainly by gains in the energy sector, giving the index a year-to-date return of nearly 7.5 per cent. With summer approaching, and the potential for US$100 per barrel oil, investors may to look to tighten their purse strings if food and energy prices remain elevated. Today, we screen for top-tier consumer staples companies that can sustain their dividend payments if profits are affected.
- First, we screen for U.S.-listed companies with a market capitalization greater than US$1-billion.
- Next, we screen for companies with a trailing 12-month dividend coverage of greater than 200 per cent. Dividend coverage indicates the capacity for a company to pay common dividends out of income available to common shareholders. A value greater than 200 per cent indicates a company could maintain their dividend even if net income were to be cut in half.
- Finally, we screen for companies with best-in-class overall StarMine rankings. We use the Refinitiv StarMine Combined Alpha (CAM) model to screen for companies with a score of 90 or above, representing the top 10 per cent of companies. The StarMine Combined Alpha Model is a percentile ranking of stocks which combines all available StarMine models into an optimal weighting for each region. The StarMine models used in the StarMine CAM are analyst revisions, relative valuation, intrinsic valuation, price momentum, earnings quality, smart holdings, insider filings and short interest.
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What We Found
The screen, ranked by the StarMine Combined Alpha Model, produced eight companies, all with exposure to food and beverage markets.
Archer Daniels Midland Co. ADM-N, which scored 92 in the StarMine Combined Alpha Model, is a multinational food processing and commodities-trading company headquartered in Chicago. Despite strong earnings in the fourth quarter, the stock has floundered, with shares down more than 13 per cent year-to-date, while the S&P 500 consumer staples index is flat. ADM has a dividend coverage of 483 per cent, and has benefited from recent supply constraints, with the agricultural services and oilseeds business delivering strong results, driven by refined products and crush margins – the difference between the underlying commodity and its byproduct. Management has indicated that providing profit guidance for 2023 will be challenging because of market uncertainties including disruptions in trade flows and crop yields, however the long-term outlook remains positive. Currently, eight of the 17 analysts covering the stock have a “buy” or “strong buy” rating, with an average price target of US$102.92, representing a 28-per-cent increase from current prices.
Ingredion Inc. INGR-N, which scored 97 in the StarMine Combined Alpha Model, was tied for the highest Combined Alpha score, while also having the highest one-year total return at 18 per cent. Ingredion is a global ingredients provider that makes sweeteners and other nutrition ingredients and has also benefited from recent supply constraints and increased demand. The company has a dividend coverage of 272 per cent, and operates two business segments – core and specialties – with a 60-40 split, which management expects to remain balanced as the company grows. Input costs are a key success factor for Ingredion, with corn making up roughly 50 per cent of the cost of goods sold. A revamped hedging strategy should provide increased margin stability, and management believes corn prices will be lower for 2023, resulting in higher margins.
Investors are advised to do their own research before trading in any of the securities shown.
Stephen Donovan, MBA, is a senior customer learning manager at Refinitiv, covering cross-asset trading for the Refinitiv Academy.