Feel the FLO
Dear Mr. Berko: I am 55, am married, have owned a successful small construction company for 32 years and work with my daughter, who’s a genius at office management. I got rid of our old stockbroker, who was buying and selling biotech and high-tech stocks I never heard of, a year ago. In the past eight years, I’m probably down about 12 percent. My new broker is recommending Flowers Foods, which I’ve never heard of, and tells me I should keep Flowers till I retire at 67. What is Flowers Foods? Is this guy out of his mind? He had me buy 500 shares of General Electric, Emerson Electric, Monsanto, Clorox, Cisco and AT&T, which I know about. But Flowers makes me wonder. — SS, Oklahoma City
Dear SS: This broker is your lifesaver, and he’s helping you build a good income and growth retirement plan. Listen to this guy. Be glad you have him. I like his picks.
My favorite carbohydrate stock is Flowers Foods (FLO-$18.25), maker of Wonder bread, which, in 1931, was the first pre-sliced bread to be marketed in the nation. So when you use the popular phrase “the greatest thing since sliced bread,” you mean the greatest thing since Wonder bread came out in 1931.
This $3.8 billion-revenue company has 10,400 employees and operates two divisions, direct store delivery (84 percent of revenues) and warehouse delivery (16 percent of revenues). The DSD segment’s 4,861 independent jobbers sell such names as Nature’s Own, Cobblestone Bread, Tastykake, Roman Meal, Merita, Sunbeam Bread and Holsum to retail food stores from FLO’s 39 bakeries. And FLO’s WD segment produces snack cakes, rolls and breads for national retail, food service, vending and co-packer customers via 10 bakeries.
Breads and rolls, day after day, and snacks and cakes, day after day, are monotonous, so FLO is as exciting as watching a Kabuki dance. FLO doesn’t sponsor gastronomical athletic events where contestants consume prodigious quantities of product. FLO doesn’t brag that its breads walk on water or that “Wonder bread builds strong bodies 12 ways.” There’s nothing exciting about what FLO does, though the dough-making process is fascinating to watch. If only management could find a way to bottle and sell the redolent baking aromas, the stock could quadruple in a week.
However, in the past 15 years, there have been at least 13 increases in FLO’s revenues, earnings and dividends. And those are bragging rights. This year, FLO expects to generate $4 billion in revenues, earn $1.10 a share and raise the dividend from 57 cents to 60 cents. Meanwhile, management’s ongoing profit initiatives, recent price hikes, increasingly efficient operating performance, equipment modernization and newly acquired brands (Dave’s Killer Bread, Alpine Valley plus others) should help generate $4.6 billion in 2019-20 revenues. And with an anticipated 40 percent improvement in net profit margins, to 7.2 percent, FLO could earn about $1.55 per share and pay an 80-cent dividend in four to five years. So with an average long-term price-earnings ratio of 21-to-1, FLO could trade at $32. Although, I think management will authorize another 3-for-2 split when FLO touches the $24-27 level again. Since 2007, FLO has had three 3-for-2 splits.
A 1,000-share purchase buys a 58-cent dividend yielding 3.1 percent. That dividend totals $580 a year, and if past is prologue, FLO’s dividend could increase about 6 percent annually. So in a dozen years, when you’re 67, the annual dividend could grow to $1.17 per share, or $1,170. But if you were to reinvest FLO’s dividend for the next dozen years, you could buy an additional 520 shares, so you’d own a total of 1,520 shares. And your dividend income could grow from today’s $580 to $1,790 when you turn your company over to your daughter and hang up your hammers and saws.
Officers and directors own 17.2 percent of the stock, and Vanguard, Fidelity, T. Rowe Price, BlackRock, Wellington Management and other big funds own over 50 percent of FLO’s stock. Schwab doesn’t like FLO, and Credit Suisse has a “neutral” rating, but BB&T Capital Markets and I say, “Buy it.”
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at email@example.com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.
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