Slurping up the Dividends - Campbell Soup Company (CPB)

It has been a slow start to the 2011 financial year for The Campbell Soup Company (CPB), but dividend investors should not ignore its consistent dividends and defensive qualities.

It has been an indifferent performance over the last six months from the worlds leading maker and marketer of soup which has gravitated between $34 and $37 per share on the NYSE.

This leaves it offering investors a dividend yield of 3.2% and trading on a price to earnings multiple of 13.9 times earnings.

Reporting first quarter earnings recently, sales dropped 1% to $2.17bn with U.S. soup sales off 5% while U.S. beverage sales increased 10%. For the quarter ended 31 October 2010, earnings were $279m or $0.82 per share, compared with $304m or $0.87 per share in 2009.

The drop off in earnings was attributed to heavy marketing spend which has yet to deliver the goods.

The results in the domestic US soup market were mixed, in what the company called a “a challenging consumer spending environment”. The key negative factor impacting first-quarter results in U.S. soup was the performance of the ready-to-serve and condensed eating soups, where increased promotional spending did not produce the planned volume gains.

Earnings were also shored up with the repurchase of 4 million shares for $156m in the quarter (an average price of $39 per share).

Campbell (CPB) said it would probably see sales growth of 1 to 3% for the full fiscal year, and earnings per share growth of 2 to 4% on the previous financial year.

While the earnings growth sounds weak, the appeal of Campbell (CPB) is in its defensive qualities. The dividend yield is attractive and the company has paid a distribution to shareholders every year since 1954, which shows a business which is solid through a variety of business cycles. The dividend declared in November was the seventh consecutive year Campbell (CPB) has increased its dividend.

Campbell Soup (CPB) won't shoot the lights out in a bull market but might well prove a place for dividend seeking investors to protect their capital in the short to medium term.