Which dividend stocks will beat the market in 2013? The answer will shock you

 

Over the years the stock market brings its bubbles and they eventually burst. The banking industry was rocking for several years going right along side the oil industry. REITs offered and still offer great dividend payouts year after year. But do you know which sector will outperform the stock market this year?

 

We could expect to see resources bounce back based on growth numbers from emerging markets,

 

We could think that the enormous amount of liquidity lying in techno stock bank accounts should be enough to push them through the roof,

 

We can think that financials can break barriers and bring dividends higher for another year

 

If you think that one of these three sector is the place to be in 2013, you’re wrong. Here’s my hint: it’s a very boring sector…

 

The Heinz Effect

 

Among all investing sectors, I’ve picked the food sector to be the most prolific in 2013!

 

Food…Seriously?  a consumer sub-sector that grows steadily by a few percent annually? How such a boring and slow growth sub-sector such as food products could get the attention from investors to the point of generating its own investing bubble?

 

Believe it or not, it’s already starting. Warren Buffett saw it before anybody else and brought out $23B to buy Heinz (HNZ).  As at Feb 1st, Heinz was up by 25.57% since the beginning of the year. Following Heinz, there are a few other dividend stocks that soared:

 

Roundy’s (RNDY) + 34.82%

Safeway (SWY) + 31.90%

Flowers Food (FLO) + 22.26%

Ingles Markets (IMKTA) + 19.17%

Campbell Soup (CPB) +17.97%

ConAgra Foods (CAG) + 16.27%

General Mills (GIS) + 14.42%

The Kroger (KR) +13.49%

The J. M. Smucker Company (SJM) +11.63%

Pepsi (PEP) +10.96%

 

That’s a total of 11 stocks beating both the market and most dividend indexes and they are all related to the food industry. You have groceries, processed & packaged food and beverage distributors. It’s quite interesting to see that they are all related to nutrition, isn’t it?

 

Why Food is So Interesting as an Investment?

 

For the past ten years, we can’t say that the food industry was the fastest growing sector. It’s a good and reliable sector with strong dividends but you are definitely not thinking “major growth” when you think about a grocery store, right? So what is going on? Why food has become Wall Street’s favorite pet all of a sudden?

 

My theory is based on sustainability. Several companies in the food sector share the same characteristics:

-          They are constantly growing

-          Their dividend is following the trend

-          Their dividend payout ratio is reasonable

-          They are diversified both in terms of products and geography

 

After 2008, we have seen a growing interest in dividend stocks. They have been popular for a while now but after we got our portfolio shake-up, dividend stocks became so interesting that we even started to think about a dividend bubble.

 

Now that we don’t have anything paying a good interest rate, dividend stocks have become the new bonds. Based on that theory, investors value are paying higher prices for solid companies showing the ability to growth their dividends over time. Instead of starving from a 1% interest rate bond, investors are looking for 3%+ dividend stocks increasing their payouts each year.

 

It’s a safe bet to think that food related companies will continue to grow their sales in a stable manner and that their dividend will follow. After all, our global population is continuously growing and the very first thing we do with our pay check is to go at the grocery store. Now that Buffett has shown the world the importance of food with his transaction, you can expect other companies to continue their growth this year. It may be not too late for some great stocks in this industry…

 

Who’s Next?

 

It’s very hard to say if the small list of 11 stocks I’ve put together will continue to skyrocket this year. Out of this short list, I’d like to call that I had 4 stocks (HZN, CPB, SWY, GIS) that were part of my Best 2013 Dividend Stocks Book (you can buy it here for $2.99). One thing is for sure, HNZ won’t go any higher now so that leaves 10 stocks to bet on.

 

Is it a good thing to buy a stock that has already gone up by 10%, 20% and even 30% in two months? I must admit that I would be tempted to cash out my profit with the first 4 stocks on that list ;-).

 

However, there are some interesting stocks that were not part of the double digit growth so far this year but still show interesting potential:

McDonald’s (MCD) +8.72%

Kellogg (K) +8.33%

Kraft Food (KRFT) +6.82%

Coca-Cola (KO) +6.75%

Lancaster Colony Corporation (LANC) +5.71%

Weis Market (WMK) +4.57%

 

If you were to pick one food stock, which one would it be? You already know my taste for MCD and KO ;-).

 

Disclaimer: I own shares of KO

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11 Comments   |  

11 Comments

March 6, 2013, 12:05 pm

I like CAG and GIS. I’ve been meaning to pick up a food giant for a while now. Safeway did really well since their dip earlier this year. Great recommendations.

Rob
March 7, 2013, 3:57 pm

Any CDN stocks on the list?

March 8, 2013, 7:42 pm

hey Rob,

not too sure if there is any good food related dividend stocks in Canada. one of my pick for 2013 is Andrew Peller ADW.A.

Weston, Metro and Loblaws have very low div yield so they don’t show on my radar.

do you have any suggestions of stocks I can look into?

March 8, 2013, 7:54 pm

I like SWY since it is an optionable stock as well. I saw the huge growth of SWY and other grocery retailers, but will they really grow next year? I read a few analysts doubting it due to inflation pressures which may lower margins on these companies.

March 10, 2013, 8:26 am

[...] Guy @ The Dividend Guy Blog writes The Sector that Will Beat the Market in 2013 – Where should you be [...]

March 10, 2013, 9:28 am

I was hoping to pick up a stable food giant, but that’s been put on hold for now. There’ll be better opportunities to get into these.

March 11, 2013, 6:53 am

[...] Madness: betting on beating the market every single time. Nonetheless, let’s all gaze into our crystal balls, preferably channelling Nate Silver rather than Sybil Trelawney. Div Guy from The Dividend Guy Blog reveals The Sector that Will Beat the Market in 2013 [...]

Derek
March 12, 2013, 3:01 pm

There aren’t many Canadian food stocks I would buy here. The grocers are good, (loblaws, Metro, Empire) but I would wait till after the target related pull back comes (Metro is one I want to get into at some point). Saputo is one I own and will do fabulous. Weston, canada bread co, maple leaf foods and molson coors are all ones i wouldn’t touch at this point.I also own couche-tard which is partially convenience food, this one will do great over the long term too. Northwest Co should do well if the current expansion of mining in the north continues. MTY food has had a run, dunno if it can go farther. Can anyone think of more canadian food related stocks?

March 30, 2013, 1:27 pm

Very interesting article. Good and solid is always better than awesome and flashy. I am more of a mutual fund guy, so is there a mutual fund that you could recommend that covers this sector that you like?

April 2, 2013, 6:57 am

[...] food market continues to boom with several high return stocks (read about the best performing food stocks here). I’m definitely proud that none of my stocks show negative results so far. I think this is the [...]

June 27, 2013, 5:01 am

[...] worst stock of a flourishing industry will rise. If you want an example, read my thoughts about the food industry, you will see that after Buffett bid on Heinz (HNZ), most companies in the same sector surged [...]

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