Although Saputo Inc. (TSX:SAP) only yields 1.4%, there’s still a very compelling reason for investors to own the stock.
The company has successfully expanded its dairy operations from their Canadian base to become a true worldwide company. It now has assets in the U.S., Europe, Argentina, and Australia.
Other acquisitions seem likely. Milk is a local business, highly fragmented around the world. An opportunity exists for somebody with deep pockets to continue to consolidate the industry.
Saputo’s management team has identified dozens of potential expansion opportunities around the world. Possible targets include further into the United States, Brazil, or New Zealand. Asia is the long-term prize, with nations like China really poised to increase their milk consumption.
Saputo recently hiked its dividend to $0.15 per share each quarter.
Earnings for 2016 are projected to hit $1.82 per share, which translates into a payout ratio of just 33%. Management is also returning cash to shareholders through a share buyback of up to 750,000 shares.
Dividend growth has historically been fantastic. A decade ago the quarterly dividend was just a nickel per share. The company has upped the payout every year since, even through the 2008-09 crisis.
Even if Saputo doesn’t make any additional acquisitions, dividends could grow faster than earnings for years before the payout came into danger. Adding in the potential for additional acquisitions just sweetens the pie.
