NEW YORK (TheStreet) -- Walk into any fast food restaurant around the world, and its almost a certainty there will be a product of Coca-Cola (KO), PepsiCo (PEP), Yum! Brands (YUM) or McDonald's (MCD) on the menu.
That is the first of four reasons investors should take advantage of any dips in the share prices to accumulate positions for long term gains of these blue chip consumer stocks.
Items from Coca-Cola, PepsiCo, McDonald's, and Yum! Brands (KFC, Taco Bell, Pizza Hut, etc...) are officially served in every country but two, Cuba and North Korea. The "Black Market" often times provides the products in those nations, however. It is likely that North Korea and Cuba will someday open up for these and other goods (let's hope).
Consumer trends in spending also favor fast food restaurants.
According to a report from McKinsey & Co., "Winning the $30 Trillion Decathlon," most of the growth in consumer spending will be in emerging markets such as China and India. When consumers generate more disposable income, eating out tops the list of the new ways to spend the additional money. Dining out has increased by one-third in the U.S. to where almost half the meals are prepared away from home. Fast food restaurants are ideally placed to profit from this unfolding trend across the planet.
Growth is projected for each of these stocks in a bullish trajectory.
Coca-Cola, PepsiCo, Yum! Brands, and McDonald's are simply too big to have monster growth anymore. That does not mean, however, the days of solid growth are over. As the chart below shows, earnings-per-share growth for the next five years is in a positive trajectory for each, which is always bullish.
The dividend amounts for each also increase historically.
At present, all of those stocks have a higher dividend yield than the average of around 1.8% for a member of the Standard & Poor's 500 Index (SPY). All have a tradition of increasing the amount of the dividend, which should continue. Each is a "dividend aristocrat," which means the dividend amount has been raised annually for the last 25 years. With the earnings-per-share growth in a bullish expectation for each, the dividend growth rate could increase, too.
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Coca-Cola, Yum! Brands, and McDonald's are all down for the last week and month of market action.
Investors should use any declines in the share prices to build a position for the long term. With the healthy dividend yields for each and the robust growth rate expected, shareholders are paid to own the stock for the long term. Each time the dividend amount is hiked, those holding the stock get a raise just for not selling!
The chart above shows how healthy the earnings and dividend growth are when combined. The bullish earnings projections of each company should add to the total return for the long term as global growth increases sales along with the rising dividend amounts.
At the time of publication the author held no positions in any of the stocks mentioned.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.
TheStreet Ratings team rates COCA-COLA CO as a Buy with a ratings score of A. TheStreet Ratings Team has this to say about their recommendation:
"We rate COCA-COLA CO (KO) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its expanding profit margins and notable return on equity. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The gross profit margin for COCA-COLA CO is rather high; currently it is at 65.60%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 20.63% is above that of the industry average.
- COCA-COLA CO' earnings per share from the most recent quarter came in slightly below the year earlier quarter. The company has suffered a declining pattern of earnings per share over the past year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, COCA-COLA CO reported lower earnings of $1.90 versus $1.96 in the prior year. This year, the market expects an improvement in earnings ($2.08 versus $1.90).
- KO, with its decline in revenue, slightly underperformed the industry average of 3.2%. Since the same quarter one year prior, revenues slightly dropped by 1.4%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Beverages industry and the overall market, COCA-COLA CO's return on equity significantly exceeds that of both the industry average and the S&P 500.
- In its most recent trading session, KO has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. The stock's price rise over the last year has driven it to a level which is somewhat expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
- You can view the full analysis from the report here: KO Ratings Report