1 Great S&P 500 Dividend Stock Down 10%, Worth Buying Now While Its Dividend Yield Is Highest in a Decade

A global snacking giant Mondelez International (NASDAQ: MDLZ) is home to a wide range of recognizable brands, including Oreo, Ritz, CLIF Bar, Chips Ahoy!, Triscuit, Toblerone and Sour Patch Kids. Since being spun off from Kraft Heinz In 2012, Mondelez achieved a consistent annual return on investment of 10%.

Although these phrases differ slightly from S&P500 The index is up 14% per year over those 12 years, and the company’s returns have matched the index’s historical annual return of 10% over the past century.

So what makes Mondelez a worthy dividend stock to buy, given that the company’s past returns have only been in line with historical market returns?

Perhaps the most compelling reason to own a company is that it can deliver market-aligned returns in a less stressful way. Mondelez’s five-year beta is currently just 0.5. Beta measures the systematic risk of an investment, and when it’s below 1, it means the stock is less volatile than the broader market. And Mondelez certainly fits that description.

Over the long term, the company could lag behind bull markets, but it should thrive in bear markets — while providing the stability some investors expect from a blue-chip dividend stock.

Best of all for investors, despite the benefits of business stability and steady profits, Mondelez’s growth story may be far from over.

Mondelez writes the next chapter of its growth story

Although Mondelez is known as a snack giant, it generally considers chocolate, cookies and baked goods to be its “priority categories.” By focusing on growing these core products, Mondelez has grown these core categories from 59% of sales in 2012 to about 80% today, and hopes to reach 90% in the long term.

One reason the company is focusing on these priority snacks is because they are its fastest-growing category, with annual growth of 10% in the U.S. over the past four years.

In addition to these faster-growing snack priorities, Mondelez has the world’s No. 1 market share in biscuits, No. 2 in chocolate and No. 3 in cakes, baked goods and bars. The company also holds market leadership positions in key markets such as chocolate in India and the UK and biscuits in China, Europe and the US. Mondelez generates 39% of its sales in emerging markets, including 73% of its revenues outside the US, making it a truly global company.

With the massive distribution network necessary to be a global snacking powerhouse, Mondelez loves to expand through acquisitions in adjacent verticals or new geographies. Since 2018, the company has spent about $3 billion on nine acquisitions. Those acquisitions now generate about $2.8 billion in annual sales and are growing by high single digits.

The story continues

A prime example of the opportunities these acquisitions bring is the company’s purchase of Mexican confectionery company Ricolino for $1.3 billion Bimbo Group. Not only did it immediately make Mondelez the largest confectionery company in the fast-growing snack market, it also tripled the footprint of its Oreo cookies and biscuits in Mexico, adding 500,000 new direct sales points.

Most importantly for investors, since these acquisitions, the company’s return on capital employed (ROCE) has been steadily improving in line with sales growth.

Comparing the company’s rising ROCE of 12% to its weighted average cost of capital (WACC) of 6% shows that Mondelez is starting to gain momentum when it comes to generating above-average returns on capital allocated for acquisitions.

As it looks to continue expanding into Latin America – the world’s fastest-growing region – and monitors the mergers and acquisitions market for healthier snacks, Mondelez is likely to continue its streak of serial acquisitions.

A once-a-decade dividend at a fair price

While the company’s sales growth and improving ROCE have been promising in the past, the stock has struggled recently. Revenue fell 2% in the company’s most recent quarter, and profitability remains strained, with cocoa prices hovering near record levels.

These temporary problems have pushed Mondelez to its lowest price-to-sales (P/S) ratio since 2018.

At this discounted valuation, the company’s 2.5% dividend yield is now at a once-in-a-decade high. Best of all, despite raising that dividend for 10 consecutive years—during which it grew by 9% per year—the company is using just 57% of its net income to fund its payouts. That percentage suggests the dividend is well-funded and should be able to continue to grow, especially as Mondelez resumes its growth story.

The icing on the cake for investors?

In addition to the company’s dividend yield reaching its highest level in a decade, management has been buying back 2.3% of the outstanding shares each year since the spin-off.

With strong cash returns for shareholders, a discounted company valuation, a high dividend yield, and a safe but growing business, Mondelez is a great S&P 500 dividend stock to buy and hold forever.

Is it worth investing $1,000 in Mondelez International now?

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Josh Kohn-Lindquist has no position in any stocks mentioned. The Motley Fool recommends Kraft Heinz. The Motley Fool has a disclosure policy.

1 Great S&P 500 Dividend Stock Down 10% That You Should Buy Now While Its Dividend Yield Is The Highest It Has Been In A Decade was originally published by The Motley Fool