Dividend Growth with Snacks
If you like chocolate and dividends you most certainly know Mondelez. The US company is big with their Milka and Cadbury brand but also produces snacks like Oreo or the famous Philadelphia cream cheese. They are also known for the growing dividends they are paying out once per quarter and raise every year. The dividend yield is currently 3% with a healthy payout ratio of 50% (dividend vs EPS).
Snacking is a lasting trend within the food market since years, with an expected growth of 6% annually until 2029 and Mondelez is giving this back to investors with growing cash dividends for their investors.
Why they are suffering
The stock has suffered over the last 18 months and is down -25% from the ATH of $78 which was marked in May 2023. The main reason for the decline is the cocoa price, which has risen a lot because of a global supply deficit, coming from bad harvest and an investment backlog into the cocoa farms in Africa. As JPMorgan states in their report, this is an issue that will remain valid midterm. If the supply is too low, prices remain high and this puts pressure on your profit margin as a chocolate producer.
Another reason for the stock price correction are the slowing volume sales. While the company increased their product prices due to higher costs, consumers bought less due to this fact. Consumer spending in general is under pressure since almost everything got more expensive the past few years with higher inflation levels worldwide. If everything gets more expensive you cut first those things that are no basic need, like confectionery or higher priced branded products in general.
Is it time to buy the dip?
As we saw the current weakness of the stock has its reasons and investors get cautious if the future seems unsure. On the other hand the company has very strong brands that are well known and because of that is able to raise prices. Also the valuation of $MDLZ at a P/E ratio of 17 is not high. In addition their chocolate business with the extremely high cocoa prices is only one pillar of their product portfolio. They are not that highly exposed as for example a pure chocolate company like Hershey.
If you believe in a midterm ease of the costs pressure, the strength of the brands and in the ability of the management to bring back higher volume sale this could be an opportunity here.
My current conclusion
For me Mondelez is still something to watch only, yet closely. Its much cheaper than before but is not a screaming buy yet in my oppinion. I am not sure if the cocoa price issue can be solved within a few months or quarters. It seems to be something sticky, as I also heard from somebody working at another chocolate company. Also the inflation pressure on consumer spendings is something that won‘t go away shortterm. On the other hand they have a strong product portfolio within the promising snack segment and are a reliable dividend payer.
What do you think? Is this a buy already?
