As Dividend Growth Investors look for high-quality consumer staple companies with a broad economic moat and showing a long history of consistently increasing in shareholder distributions, businesses like The Coca Cola Company, PepsiCo, Hershey, Johnson & Johnson, etc. are components of their investment portfolios or at least are on their watchlists.
It’s Dividend Aristocrats conservative income-oriented long term shareholders want to hold. Ideally, these are stocks for life. It’s companies like these that have been the building stones for huge intergenerational wealth.
In Europe, more precisely in Switzerland, you can find another giant with Nestlé, the Geneva-based world largest food maker and one of the largest drink producers.
Investors, in particular in the US tend to compare Nestlé to Unilever, Danone and General Mills.
But looking at Nestlé’s financial fundamentals, its brand’s list, returns on equity, it is pretty clear that this company is superior to the ones like General Mills, Danone, or Unilever.
So, could we compare Nestlé with PepsiCo?
Yes, and no, I would say.
Both businesses have an enviable brand portfolio and are extremely well position in global markets, both have great catalysts for growth (for instance there are huge opportunities in emerging markets). Both companies’ diversification strategies show outstanding abilities in acquiring and integrate different companies and boost their innovation path.
Both have products and a business model that are very easy to understand. Just looking at Nestlé, people love ice cream, chocolate, coffee, sparkling water, etc. So, it makes sense not only to consume their products but also to have an eye on that company from an investor’s perspective.
What sets Nestlé truely apart e.g. from PepsiCo, that it owns 23 % of the French personal care giant L’Oréal. That’s an amazing stake it has.
Just think of that: Nestlé is the largest food producer in the world, it is one of the major players in the coffee sector with interesting joint ventures like Starbucks, furthermore is third-largest drink producer (after Coca Cola and PepsiCo) and the best: it owns roughly a third of the strongest, most iconic beauty and cosmetic company L’Oréal.
L’Oréal’s brand portfolio is incredible, just check out the link.
It’s a company that has existed for over 100 years, paying out steadily increasing dividends to its shareholder for decades and there is still tremendous room to grow further.
When you look into the fundamentals of Nestlé, make sure not only to have a look at the operative business (food, drinks, coffee,e etc.), but also glance at the huge holding on L’Oréal. There is cash flow coming in form of dividends of L’Oréal. These have been rising for a long time, and given the incredible growth opportunities of L’Oréal they are very likely to continue so.
Like most consumer staple companies, it is extremely rare that L’Oréal and Nestlé stocks get really cheap. How could they? Clever investors exactly know the quality of these two companies. And that’s why long-term oriented Dividend Growth Investors should always embrace stock market corrections, as these provide rare opportunities to buy shares of a wonderful company at a lower price.
And it’s definitively worth waiting. Shares of such companies give stability to a portfolio and provide a steadily growing stream of fresh cash to be reinvested into the investment portfolio. That’s the beauty of Dividend Growth Investing. Using the tremendous power of the Compound Effect.
You are responsible for your own investment and financial decisions. This article is not, and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.