Nothing but chocolatey goodness (photo by Wikimedia - Andre Karvath)
Ask any lady about the bare necessities of life, and chocolate ranks way on up there. Food, fire and shelter… and fudge brownies.
That could be one sexist statement unencumbered by cold hard facts, but sure, Valentine’s Day was just but a scant week ago. It’s not for nothing that flowers *and* a box of chocolates do much to generate goodwill among the genders. Not flowers and broccoli, not flowers and a toaster, but a dozen roses and some tasty truffles.
In keeping with this site’s model dividend portfolio, it’s all about investing in the basics: food, beer, smokes and now chocolates.
Rocky Mountain Chocolate Factory has been in operation since the early 1980′s, with delicious chocolatey offerings and a tasty dividend yield of 4.44%.
Rocky Mountain Chocolate Factory, Inc., incorporated in 1982, is an international franchiser, confectionery manufacturer and retail operator in the United States, Canada and the United Arab Emirates. The Company manufactures an extensive line of premium chocolate candies and other confectionery products. The Company’s revenues are derived from three principal sources: sales to franchisees and others of chocolates and other confectionery products manufactured by the Company; the collection of initial franchise fees and royalties from franchisees’ sales; and sales at Company-owned stores of chocolates and other confectionery products.
Now is that more than a little weird, United States, Canada *and* United Arab Emirates? Not really. I’ve seen this with other food franchises, like for example Round Table Pizza. A mostly West Coast pizza chain with a great Garlic Supreme, they’re all over the SF Bay area, a few here and there in neighboring states like Oregon and Nevada…. and in the airport terminal in Dubai. Go figure. It could be that some vacationing Emiratis liked the pizza (or chocolates) so much that they wanted to have some available back home too, and just bought the franchise.
So, as long as both portly Americans and chubby Gulf Arabs keep noshing on marble fudge and macadamia clusters, I’ll keep a small chunky chunk of our 401K invested in RMCF. This is what the portfolio looks like now, with the addition of 200 shares of RMCF.
One might say, why not go for chocolate royalty like Hershey Company (HSY)? Good question. Let’s see how the numbers stack up, comparing RCMF versus HSY versus another Centavos stalwart, GLDC.
Stacking up the numbers
Hershey certainly has scrumptious ROA and ROE numbers, with 14.48% and 70.87%, low beta, and a dividend yield of 2.50% growing at a healthy 6.56% clip over five years. No wonder that a good many fund managers find some room for HSY on their portfolio.
But, they also hold plenty of long-term debt, and their stock has been on a tear this year, rising towards its high of $66 last reached back in 2005.
Hershey Co (HSY) Five Year Trend
Me, I tend to like nano-cap stocks like RMCF. Not as liquid, and certainly more risky, but more fun. RCMF’s five year chart looks a little more sedate, but with only 325 or so franchises, there is room for growth. Even if it doesn’t, that’s OK as long as it keeps up its dividend.
RMCF's Five Year Trend
Speaking of dividends, RMCF’s payout ratio is on the high side at 67%, but for a franchise operation, they’re profitable and it appears that they can afford to return profits to shareholders and not worry overly much about plant and equipment, bricks and mortar — that risk is taken on by franchisors. Indeed, RMCF’s long-term debt load is exactly zero. I’ll keep watching. Should the dividend falter, I might just switch to HSY.
What do you think, readers? Nano-cap versus blue-chip large cap? Or both?
(by the way, the dividend portfolio looks a bit healthier than the last update in terms of total returns)
I like your strategy. Stick with the smaller company with higher up-side. No long-term debt!! Smells like profits to me. Hope you enjoy some healthy returns… as well as some tasty chocolate!
Matt @ RamblingFever Money recently posted..Thinking About Money While Sitting on the Toilet
Dark chocolate fondue and strawberries. Had some the other night, and it’s hard to stop at just a few dozen.
Very interesting 101C! I’ve never focused on the Chocolate industry – your post is certainly ‘food for thought’!
With a small cap, the risk is more, but then so is the scope for growth or a buyout by a larger firm for a premium. A balanced portfolio should have a good mix of all asset classes.
MoneyCone recently posted..Unconventional Wisdom In Personal Finance
If only Ghirardelli was a public company, eh?
who are you calling a lady, bub?!
my personal addiction is chocolate.
solid análisis and easy to see why you went with RMCF. any concerns over their relatively weak 2% growth rate?
Also, if you done it I’d be interested in the similar analysis that brought you to MO. Personally I hold RAI in that space.
jlcollinsnh recently posted..The Casanova Kid, a Shit Knife, a Good Book, Having No Regrets, Dark Matter and a bit of Magic
Nothing wrong with RAI, I might ‘dip’ into that too in due course. MO is just a bit more diversified — cigars, wine and financial services.
Slow and steady growth seems to be the norm for smaller food companies. I’m OK with that.
I had to wait to post my reply because I had to go eat a chocolate chip cookie and have some milk.
Now that I am back, I have to say I love when you show your portfolio as it gives me some ideas for ours. I have often wondered how well Rocky Mountain Chocolate has performed as I have only seen one store in this area. (I only think of chocolate coated apples when I think of that store though. Not sure that is so good.)
I like a mix of small/medium and large cap. I am not sure I personally would invest in this company just because I have not seen new franchises open up around here. The story might be different though if I lived in a different part of the country.
I sure wish I had invested in Panera when it first came out! I remember thinking it was a little high at 11/share. Now it is at 150!
Kris @ Everyday Tips recently posted..Short Term ‘Pain’ For Long Term Gain
Hi Kris – RMCF has one store in our area, but I haven’t been. I got the idea after visiting their store in Eureka Springs (AR). Granted that ES is a tourist town, but the place was absolutely *packed* with people – and the fudge was something else!
OK, time for some dark chocolate now.
Interesting company. Even in hard times, people still buy candy. I may look into this one!
Robert @ The College Investor recently posted..Why Term Life Insurance is Best
Candy, beer and cigarettes, even in hard times.
Very ORiginal 101! Haven’t seen much in the way of chocolate dividend paying stocks
Going with a smallcap is fine as long as you keep an eye on that balance sheet.
BeatingTheIndex recently posted..Natural Gas Stocks: Beware of Declining Natural Gas Prices
RCMF and HSY may be the only dividend paying chocolate stocks out there. I checked on Nestle, but in the US it’s privately held. There’s also Tootsie Roll, with a lower yield and a nosebleed P/E.
I have to admit I’m one of the ladies who ranks chocolate high on the list! As far as taste goes, I’ve never been a fan of Hershey’s chocolate. It tastes weird to me but I guess enough people like their products for them to have been around so long. -Sydney
my wife says the same thing about Hershey’s, although she a bit harsher. To her it tastes like what she imagines cockroaches would taste like. Hasn’t tasted the same to me ever since hearing that….
jlcollinsnh recently posted..The Casanova Kid, a Shit Knife, a Good Book, Having No Regrets, Dark Matter and a bit of Magic
Hi Sidney – you’re not alone in criticism of Hershey’s. I’m trending more towards premium dark chocolate these days, and Hershey’s doesn’t compete well there.
I like the looks of this investment. I read something else a while back about RMCF but didn’t realize that they paid a dividend. I think it is smart to get paid while waiting for this company to mature. I wouldn’t be surprised if they got bought out by a larger company in the future.
cashflowmantra recently posted..Starting Another Blog and Recruiting Writers
two interesting points there CFM….
makes me wonder why, at their small size, they aren’t retaining earnings to grow the biz. especially with the anemic 2% growth rate they have
take out target. Mmmmm
jlcollinsnh recently posted..The Casanova Kid, a Shit Knife, a Good Book, Having No Regrets, Dark Matter and a bit of Magic
I’m OK if they get bought. I haven’t bet the farm on it, and even if it’s a private equity takeover, there might be a premium to the stock buyout.
Interesting. The yield looks really good. I don’t know anything about RMCF though and I haven’t seen any stores. Maybe the next time I’m in UAE.
retirebyforty recently posted..Pregnancy is Not Too Early to Start Saving for College
Dozens of kinds of fudge, Joe. If you ever run across a store, it’s worth a visit. Amazing what a little-bit-of-this and a little-bit-of-that will end up costing you.
Nothing wrong with a bit of risk if it is balanced out by something else. Chocolate does seem pretty recession proof too, always a good strategy.
Shaun @ Money Cactus recently posted..Rewarding Your DIY Efforts
Hi Shaun,
I was also thinking that they don’t have far to fall in case of another market correction. $6.55 a share in the first part of 2009.
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