Laying Some Dividend Stock Eggs. CALM

Why did the chickens cross the road? They wanted collect their dividend check. After you see our stock pick below, this becomes a fairly obvious way to start this post, and I could not help myself.  Time for dividend stock eggs to make some money.

Eggs

One growing trend we are looking at is people eating healthier and healthier diets. One large way to eat healthier is eggs. With 6 grams of protein, vitamins, and minerals, eggs are a great way to eat healthier. In addition, they only have 91 calories. Now there have been debate over the past decades of whether eggs are healthy or not. But compared to donuts and candy bars, they can be a great way for me to eat healthier. In fact, an egg and cheese sandwich sounds great right now.  This brings us to our current stock pick.

Some Egg Background

Cal-Maine Foods (CALM) is a large producer of eggs. Currently, they are the largest producer of eggs in the United States at 23% market share. They have several variety of eggs, including cage free, conventional, and organic eggs. Their production is in at least 16 states, which helps keep them close to their end market, such as grocery stores. They were founded in 1957 and they are currently headquartered in Jackson, MS.


Dividend Stock Eggs

Cal-Maine Foods (CALM) have a different dividend policy than a bunch of dividend stocks and one you might not expect to see in a portfolio looking for consistent dividend growth. Every quarter, they pay a dividend equal to 1/3 of their quarterly earnings. On quarters they make more money, more dividends are paid, and vice versa. Considering that they are so focused on eggs, this can create a lot of volatility in earnings. So instead of having to worry about dividend being cuts or taking on debt to pay them in bad quarters, the system takes care of it. 1/3 of earnings being paid out as dividends feels fair to me. Even if it isn’t, this is the policy of the stock we picked. And the other 2/3’s of earning can be used for investing, stock buybacks, and other opportunities.

Even though the dividends are inconsistent, if the company doubles earnings per share, the inconsistent dividends will also double.  We believe that the egg market will continue to grow and for Cal-Maine Foods (CALM) to keep taking market share.  There are also specialty eggs that have higher revenue and more profits per egg. People are increasing their wants of healthy foods and looking more for organic and cage free eggs.

Value for our Eggs

We like getting a good price for our stocks. While we are focused on dividends, we all do not want to over pay for a stock. Their current 52 weeks high is $63, giving us a discount of a 18% to that. Their PE is only a 6.8, which is low. Even if profits get cut in half, they would still have a PE of 13.6, which is still a good price. Even their P/S is about a 1.2, which is a decent value. Especially the PE of 6.8 concerns us that the stock market thinks something is wrong or the company is shrinking. Currently they are growing, so I do not believe that is it. The stock price could be weak because eggs can be considered a commodity, and commodities have struggled lately. We believe that this will be overcome and then a large stock price increase for us.

Time for an Eggcellent Purchase

We believe this is a good starting share price for us, so we bought 5 shares for $265.75, including those egg laying commissions. With $8.80 in yearly dividends, I can buy several dozen eggs per year, and it should go up from there, which is eggcellent. Therefore, I will eat more eggs and watch my dividends grow.

Who wants some dividend stock eggs? Do you like the random dividends of Cal-Maine Foods (CALM)?  There is a comment section below to join in.

You can review more stock purchases here.

Discloser: Long CALM

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