On a recent trip to the grocery store I noticed items in the carts around me included chips, chocolate pudding and cheese dip. In our current state of inflation, layoffs and paralyzing acts of Mother Nature, it appears that people are seeking refuge in foods that bring a little comfort. Coupled with an up and down stock market and rising food prices for base ingredients, investments in these comfort snacks have the added benefit of dividend payments that can provide a portfolio with a much needed cushion against market volatility. (Find out how to adjust your portfolio when the market fluctuates to increase your potential return, in our article Volatility's Impact On Market Returns.)

Sweet and Savory
Beverage company PepsiCo (NYSE:PEP), best known for its soft drinks like Pepsi and Mountain Dew, is also well-positioned to satisfy consumer snack attacks with its Frito Lay Division that includes Lay's Potato Chips, Doritos, Ruffles and Sun Chips. Frito Lay North America (FLNA) generated $2.7 billion on an annualized basis through March of 2008, which comprised nearly 33% of Pepsi's net revenue. It was followed closely by Pepsi Co American Beverage Division (PCAB), which contributed 28% with $2.3 billion. That's nearly a 7% increase for FLNA and a 6% increase for PCAB over the previous year. PepsiCo's net revenue for the period was up 13% to $8.3 billion sending operating profits up 9% to $1.6 Billion.

Overseas Snack Growth
PepsiCo generates approximately 40% of its net revenue outside of the United States. Two of PepsiCo's fastest growing markets are its Latin American Foods Division, with net revenues up 37% to $971 million, and its Middle East, Africa and Asia Division, which posted a net revenue increase of 31% to $866 million over the same time period. It's also worth mentioning that net revenue growth in the United Kingdom and throughout Europe also improved by 23% to $911 million. The steady decline of the U.S. dollar helped raise net revenue for the year.

While PepsiCo does have hedging strategies in place to counter rising prices for its raw materials and energy costs, investors must stay aware of how a rising U.S. dollar could impact future revenues. (For further reading on this subject, be sure to check out Global Trade And The Currency Market.)

Outside of the Snack Aisle
Comfort-food makers Yum! Brands (NYSE:YUM) and Kraft (NYSE:KFT) also stand to benefit from consumers looking to escape. A pizza craving can be satisfied with a warm slice at Pizza Hut (owned by Yum! Brands) or a DiGiorno oven "Pizza for One" (owned by Kraft) at home. Kraft, who also offers a wide variety of pudding and cheese foods, is paying a 3.4% forward annual dividend yield while Yum Brands is paying 1.9%. For Coca Cola disciples, Coke (NYSE:KO) is also a solid alternative or complement to add to your portfolio. Coke has a 2.7% forward annual dividend yield, and institutions and corporate insiders have taken notice by making purchases during the first quarter of the year.

Pay Attention
Investors should acknowledge if they have found themselves acting out (through recreation, eating, etc.) in order avoid the reality of market pressure. It's likely that you are not alone. PepsiCo is a rebound play in this stressed market situation, since it is trading down 12% YTD. Wall Street analysts have a one-year price target of $80 for PepsiCo, which is currently trading just below $68. PepsiCo also offers a comparable 2.5% forward annual dividend yield.

On a practical level, an investment in comfort foods offers domestic and international exposure, product line differentiation and a buffer against market volatility. On a selfish level, the investment is a bet on the power of snacks and treats' ability to help consumers get through the tough times.

To find out what you should do during financial crunches, check out Five Strategies For Surviving Tough Times.

Related Articles
  1. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  2. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  3. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  4. Investing News

    Is Buffett's Bet on Oil Right for You? (XOM, PSX)

    Oil stocks are getting trounced, but Warren Buffett still likes one of them. Should you follow the leader?
  5. Investing News

    Chipotle Served with Criminal Probe

    Chipotle's beat muted expectations and got a clear bill from the CDC, but it now appears that an investigation into its E.coli breakout has expanded.
  6. Stock Analysis

    Analyzing Sprint Corp's Return on Equity (ROE) (S)

    Learn about Sprint's return on equity. Find out why its ROE is negative and how asset turnover and financial leverage impact ROE relative to Sprint's peers.
  7. Stock Analysis

    Why Alphabet is the Best of the 'FANGs' for 2016

    Alphabet just impressed the street, but is it the best FANG stock?
  8. Investing News

    A 2016 Outlook: What January 2009 Can Teach Us

    January 2009 and January 2016 were similar from an investment standpoint, but from a forward-looking perspective, they were very different.
  9. Mutual Funds & ETFs

    3 Vanguard Equity Fund Underperformers

    Discover three funds from Vanguard Group that consistently underperform their indexes. Learn how consistent most Vanguard low-fee funds are at matching their indexes.
  10. Investing News

    Alphabet Earnings Beat Expectations (GOOGL, AAPL)

    Alphabet's earnings crush analysts' expectations; now bigger than Apple?
RELATED FAQS
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center