On the day that the DOW, S&P 500, and NASDAQ Composite dropped two percent on global growth worries, once again, several companies reported very good numbers.
But investors are paying less attention to corporate results and more attention to economic news from around the world that suggests that the only mature economic engine running at any positive speed currently is the U.S. economy.
PepsiCo, Inc. (PEP) had another good quarter. The company’s two businesses, food/snacks and beverages, produced modest single-digit growth in consolidated sales.
Net earnings grew five percent, while earnings per share grew seven percent over the third quarter last year. Management also increased its expected constant currency earnings-per-share growth for this year from eight to nine percent.
The company expects to return a total of some $8.7 billion to shareholders this year, comprising approximately $3.7 billion in dividends and $5.0 billion in share buybacks.
PepsiCo is on track to deliver what investors expect. The stock just hit a new all-time record-high still with a 2.8% dividend yield.
Getting into third-quarter earnings season a little further should help focus the stock market’s attention but clearly, sentiment has really turned.
If the trading action continues to wane, good businesses are going to become more attractively priced and equity investors looking for new positions will have better choices.
I do believe that for the investment risk, sticking with existing winners is a good strategy regarding large-cap, dividend-paying blue chips.
Dividend income really matters in a slow-growth environment, and corporations would still rather return cash than take on major new ventures.
Previously in these pages, I’ve written that for long-term investors, I like NIKE, Inc. (NKE), The Walt Disney Company (DIS), PepsiCo, Microsoft Corporation (MSFT), Union Pacific Corporation (UNP), Johnson & Johnson (JNJ), and 3M Company (MMM) as investment-grade, dividend paying stocks for conservative portfolios.
With companies like these, you mostly get a good track record of operational and equity market success, earnings reliability, share repurchases, and rising dividends.
One company I would add to this list that falls into the mid-cap tier is The Toro Company (TTC). (See “What Sets This Company Above the Rest.”) It’s the kind of enterprise you don’t really think of or hear about, but it has proven itself to be a very good business.
Toro makes turf maintenance and irrigation equipment. It’s been around for years and also sells equipment under the “Lawn-Boy,” “Lawn Genie,” “Pope,” and “Unique Lighting Systems” brands among others.
In its most recent fiscal third quarter, the company’s sales grew 11% to a record $568 million. Management noted that it experienced strong demand for its products both for professional and residential products.
Third-quarter earnings came in at $50.0 million, or $0.87 per share. This compares to earnings of $40.1 million, or $0.68 per share, in the same quarter last year, which represents a very good comparative gain.
Like most other stocks, Toro has been doing very well the last several years. But the position’s been waning and is now worth putting on your radar for those interested to buy on weakness.
If sentiment keeps deteriorating, a lot of very good businesses are going to become attractively priced. It will be great to see how third-quarter earnings season unfolds. So far, a lot of numbers are very satisfactory.