These cocoa beans are the most critical ingredient in Hershey's chocolate operations, and their price has roughly tripled from historical averages over the last three years. Despite this surprise spike, Hershey has grown its earnings per share by 28% during those three years.
This resilience highlights the safety and stability inherent in an investment with Hershey, which is why I was happy to have my daughter make it one of her nine core holdings. One reason for this success in trying times is the company's Hershey's, KitKat, and Reese's brands, which continue to rank as the most recognizable chocolate brands in the U.S., according to a study from Statista.
Hershey currently trades at 21 times earnings and offers investors a 3% dividend that it grew by 15% this year. Both of these marks are near their most favorable levels since 2014. But don't just take my word on these valuation metrics being appealing. Snacking behemoth Mondelez recently kicked the tires (again) on Hershey's operations as a potential acquisition target.
Whereas American Tower is the largest U.S. REIT, Public Storage may be the highest-quality REIT. Along with being the leader of the storage space niche with a 9% market share, Public Storage is the only U.S. REIT with A2 and A credit ratings from Moody's and S&P Global, showcasing its dominant positioning.
Additionally, the company's best-in-class cash return on invested capital (ROIC) of 14% and free-cash-flow (FCF) margin of 42% round out the reasons why it might be the highest-quality REIT. This high ROIC is vital for Public Storage as it shows that the company's mergers and acquisitions (M&A) growth strategy continues to be highly cash-generative.
Since local and regional providers own 80% of the storage space industry, the market remains highly fragmented, leaving it a perfect M&A playground for Public Storage.
Today, the company pays a 3.8% dividend yield and has increased its payouts by a hefty 17% annualized rate over the last decade. With Public Storage's stock still down 24% from its 2022 highs, now is as good a time as any to buy the strongest brand in the store space industry.
MTY Food Group is not a name that will be recognized by many. However, most people will know at least one of its 90 franchised snacking and restaurant brands, such as Cold Stone Creamery, Famous Dave's, Papa Murphy's, Village Inn, Thai Express, and Wetzel's Pretzels.
The fact that MTY Food Group operates using a franchise model is perhaps its most attractive quality for investors. By transferring the capital and operations risk to its franchisees, the company remains an asset-light, high-margin operator capable of steady expansion through the addition of new brands via M&A.
MTY has proven to be highly skilled at growing its presence through this acquisitive strategy, as it has maintained an average cash ROIC of 14% since 2014. This ROIC means that the company generates outsize cash flows from the debt and equity it uses to fund new purchases, leaving ample cash available to invest in a growing dividend or to stockpile for future M&A.
MTY currently pays a dividend yield of 2.4%. However, the potential for this dividend to continue growing is immense, as current payouts only use 14% of the company's FCF. This low ratio implies that MTY could theoretically triple its yield to 7.2% and still only use 42% of its FCF to do so. Trading at just 6 times FCF, MTY Food Group offers investors market stomping potential if it merely keeps on keeping on, which it should have no problem doing.
Zoetis is an animal healthcare leader benefiting from the ongoing megatrend of the "humanization of pets." The company believes 90% of its sales come from products where it holds a market share leadership position. It offers an array of goods, from medicines, vaccines, and diagnostics to genetic tests and precision health products.
Just how strong is the humanization of pets megatrend? A recent study by Zoetis and The Human-Animal Bond Research Institute showed that a staggering 86% of pet owners "would pay whatever it takes if their pets needed extensive veterinary care."
With younger Gen Z and millenial pet owners leading this trend, it lays a long growth runway ahead for Zoetis and its wide array of pet pain medicines. Most notably, the company's recently launched osteoarthritis medicines for dogs and cats grew by 97% in the last quarter and are only starting to gain a foothold in the global market.
While Zoetis pays the smallest dividend yield of these five stocks at just 1%, it has increased its payments by 22% annually over the last decade. In addition to this dividend growth, the company also rewards shareholders by reducing its total shares outstanding by 1% annually, creating a beautiful "X" as shown in the chart below.
Down 28% from its highs, Zoetis currently trades at its most reasonable valuation in over five years at 35 times FCF, making today one of the better times in recent history to consider buying this magnificent dividend growth stock.
Ever feel like you missed the boat in buying the most successful stocks? Then you'll want to hear this.
On rare occasions, our expert team of analysts issues a "Double Down" stock recommendation for companies that they think are about to pop. If you're worried you've already missed your chance to invest, now is the best time to buy before it's too late. And the numbers speak for themselves:
Right now, we're issuing "Double Down" alerts for three incredible companies, and there may not be another chance like this anytime soon.
Josh Kohn-Lindquist has positions in American Tower, Hershey, MTY Food Group, Public Storage, and Zoetis. The Motley Fool has positions in and recommends American Tower, Hershey, MTY Food Group, Moody's, S&P Global, and Zoetis. The Motley Fool recommends T-Mobile US and Verizon Communications and recommends the following options: long January 2026 $180 calls on American Tower and short January 2026 $185 calls on American Tower. The Motley Fool has a disclosure policy.
5 Magnificent Dividend Growth Stocks Down 24% to 41% to Buy Before 2025 for a Lifetime of Passive Income was originally published by The Motley Fool