Our kiddie-capitalists just added a bit of spice to their portfolio. In our last round of family investing, we chose the world’s leading flavor manufacturer McCormick & Company (NYSE: MKC). Though McCormick is a company priced for outstanding performance, I am confident the business will be a staple of our children’s portfolios for many years, if not decades.
This quarter, the children were excited to invest in either Hasbro (NASDAQ: HAS) or Costco (NASDAQ: COST) because they love Hasbro’s toys and games and Costco is our favorite place to shop, but both businesses face significant challenges because their customer’s preferences are evolving toward digital entertainment and online shopping, respectfully. I managed to redirect our discussion to their excitement for cooking (they love to help in the kitchen). On a whim, I spontaneously found five or six different McCormick spices and our bottle of Red Hot and asked if the would like to own the company that makes our food taste delicious. Pro tip: props improve almost any presentation - especially when you pitch to elementary school kids.
McCormick’s business is attractive for several reasons. Not only does McCormick own the spice aisle in your local grocery store, its commercial business supplies spices to food manufacturers and foodservice providers. As we progress through economic cycles, McCormick’s commercial business may weaken as consumers forgo meals out for cooking at home, but this activity will bolster the retail spice and flavor business. As an inexpensive solution to enhance any meal, budgetary constraints are not likely to negatively impact sales of McCormick’s spices and flavors. Further, the business is diversified geographically; only two-thirds of McCormick’s sales are generated in its Americas region.
Though McCormick’s stock is trading at a high earnings multiple, this is a small position (roughly $200 per child) and with the market at such an elevated valuation I am more confident investing in this steady business than a more aggressive position. Further, McCormick’s business generates considerable free cash flow and has raised its dividend every year for several decades.
MKC is a significant position in our family’s portfolio and I am happy to add it to the children’s portfolios. The company has excellent potential, but, more importantly, we don’t have to leave the kitchen for the children to be reminded about the companies they own. Every meal now provides a seamless transition into a conversation about their business and investing.