By Jack Hough
Big Food stocks have been hit so hard that I saw Mr. Peanut asking Count Chocula about tax-loss harvesting. Kraft Heinz is down more than 40% over the past three years, not counting dividends, and General Mills, Campbell's, and Conagra Brands, around 60% apiece. The S&P 500 over that stretch made 72% plus dividends.
As prices have fallen, dividend yields for the bunch have plumped up to 7% to 9%. To quote Kool-Aid Man, who I hear is investing for income these days, "Oh, yeah!" But he should think carefully before barreling in. There are several challenges facing these companies, and one could soon get a lot worse.
Food companies face cost inflation, stretched budgets for middle-income shoppers, and competition from small, insurgent brands. Plus, market share in grocery is shifting toward mass merchants that can play hardball on price. State Street Consumer Staples Select Sector SPDR, an exchange-traded fund that holds all of the above food names, has eked out a gain over the past three years, largely because its two largest holdings, Walmart and Costco Wholesale, are up 160% and 100%, respectively.
To these headwinds add weight-loss shots -- and now pills from the same companies, with one approved in December and another only in April. The medicines are old news, but UBS argues in a recent report that adoption of them is just getting started. About 1% of U.S. adults currently use this class of drugs, commonly called GLP-1s, after a hormone produced in the gut. That will hit 10% by 2030, says UBS, as prices come down and insurance coverage and availability spreads.
Studies suggest that GLP-1 users eat and drink some 30% less, although declines are obviously not evenly distributed -- booze gets hit harder than sparkling water. UBS reckons the aggregate hit to food and beverage demand will be front-loaded: a 1.2% decline this year, followed by 0.9% next year, and 0.3% in each of the following two years. The report comes from the bank's packaging analysts. They expect GLP-1s to negatively impact companies like O-i Glass and Graphic Packaging Holding, with exposure to beer and snacks, respectively, but it might just help a player like Avery Dennison, which makes RFID tags for clothing.
We can infer a difficult stretch for Big Food, too. And in a separate analysis, BofA Securities points out that dividends for some food names look stretched. There are many ways to judge that sort of thing, like comparing payments with earnings and free cash flow, and with companies' target dividend policies. It's important to factor in debt levels, looming maturities, and credit ratings, and what ratings agencies say about where things are trending. BofA uses all of these.
What isn't particularly helpful, usually, is management commentary on dividends. A payment cut, or even a whiff that one is likely, can send shares sharply lower. So, companies often say that they're strongly committed to their dividends until the day they cut them. BofA uses a traffic-light scale to measure its level of concern over cuts. Its red-light stocks are Conagra, Kraft Heinz, General Mills, and Campbell's. Yellow lights are Hormel Foods, Mondelez International, Hershey, Lamb Weston Holdings, and McCormick & Co., which has agreed to combine with Unilever. In better shape, at least dividend-wise, according to BofA, are the green lights: Smithfield Foods, J.M. Smucker, Tyson Foods, and Utz Brands.
Read the rest of this week's Streetwise column here.
Write to Jack Hough at jack.hough@barrons.com. Follow him on X and subscribe to his Barron's Streetwise podcast.
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(END) Dow Jones Newswires
April 24, 2026 11:58 ET (15:58 GMT)
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