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S&P closed Friday at 7,722, within about 1% of its record. Nasdaq's up 17% on the year. Meanwhile, a Dividend King with 40 straight annual raises is scraping along the bottom of its 52-week range and paying you better than 4%.
That's the whole trade, right there.
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Meet the Pick
McCormick & Company (NYSE: MKC). You already know the brands in your spice rack: McCormick, French's, Frank's RedHot, Cholula, Old Bay. What you probably don't think about is the other half of the business, the industrial flavor side. That's the stuff ending up in your favorite chip bag, your frozen lasagna, the ranch on the salad bar at work.
Market cap sits around $12 billion. Shares closed Friday at $44.67. That's roughly 3% above the 52-week low of $43.25 and a world away from the $72.41 high.
For a company that's hiked the dividend every single year since Reagan was in the Oval Office? That's your window.
Why the Street Keeps Mispricing MKC
Consumer defensives got dumped this cycle. Period. The chart tells you everything. Money chased AI and anything with "accelerator" in the name, and the slow compounders got left for dead. McCormick is collateral damage.
But look at what the business has actually been doing. Operating cash flow through the first nine months is just under $600 million. The GF Value model pegs fair value near $82, which puts the stock about 43% below where you should be paying.
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Here's the mispricing you want to see:
- Forward multiple around 14x. Five-year average is closer to 24x.
- Yield around 4.3%. Almost double the historical norm.
- Payout ratio comfortably covered by cash flow
- 40 straight years of raises. Dividend King status.
The market's priced MKC as if growth is dead. It isn't. Organic sales guidance for the year is tracking the low-to-mid end of a 1-3% range. Boring? Sure. But boring compounders at 14x earnings don't stay at 14x for long, and you know it.
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The Holiday Flavor Window Is the Spark
McCormick's calendar matters more than most defensives. Fiscal Q4 catches Thanksgiving, Christmas, and New Year's. That's the single biggest selling window of the year for spices, seasoning mixes, and flavor systems. Home cooking spikes. Grocery shelves fill up with holiday SKUs. Industrial customers lock in orders for holiday-tied CPG products months ahead.
If food inflation plays nice and holiday pull-through hits even the midpoint of guidance, this stock doesn't need a miracle. It just needs to not disappoint. At these levels, your bar is sitting on the floor.
Action: McCormick reports fiscal Q3 results before the open today, so read the print before you act. Then start accumulating MKC between $43 and $47 ahead of the fiscal Q4 earnings report in late January 2027, which covers the holiday season. The dividend announcement for year 41 usually drops in late November. Your second catalyst, inside eight weeks. |
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Flavor Is Stickier Than You Think
Here's a stat you rarely hear: roughly 85% of flavor decisions in packaged food get locked in once a formulation ships. Food companies don't swap flavor suppliers the way IT departments swap SaaS vendors. Reformulation plus regulatory sign-off? Brutal switching costs.
McCormick plays both sides. Flavor Solutions supplies the industrial giants (Nestlé, PepsiCo, McDonald's), giving you the kind of long-tail recurring revenue most consumer names would kill for. The Consumer segment owns the shelf. Together, they throw off the kind of cash flow that funds a four-decade dividend streak without breaking a sweat.
You're buying a toll booth on global eating habits at the price of a struggling retailer. That math doesn't last.
The Numbers That Actually Matter
The last three quarters all beat on EPS. Nine-month operating cash flow near $600 million. Adjusted gross margin north of 39%, which tells you pricing and mix are holding up even with modest volume growth.
Balance sheet's in the best shape in years. Net debt-to-EBITDA has been grinding lower ever since the Cholula and FONA deals got digested. So the next catalyst isn't just dividend growth. There's buyback optionality here. Tuck-in M&A optionality, too. You're paying for neither.
Management didn't blink through COVID. Didn't blink through the inflation spike. Didn't blink through the GLP-1 scare. Your dividend kept growing through all of it. That consistency shows up in the compounding math, not the quarterly print.
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The Dividend You Came For
MKC has raised the dividend for 40 straight years. That puts it in Dividend King territory alongside maybe 50 other U.S. names. The current quarterly payout is $0.48, or $1.92 annualized. At $44.67, you're looking at a yield right around 4.3%.
Context: MKC has traded closer to a 2% yield for most of the past decade. Last time you could grab a 4%-plus yield here was during the COVID panic. That alone should tell you where valuation sits.
You don't need to be a hero here. Just patient.
Action: If you're building income, this is a core position entry. You lock in a 4%-plus starting yield. You get a near-certain raise in late November (which pushes forward yield higher on your cost basis). And you get roughly 40% upside to our medium-term target if the multiple normalizes. |
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What Could Blow This Up
Let's be straight about the risks you're taking. GLP-1 drugs are a real overhang on packaged food. If appetite suppression actually chews into grocery volume over the next 3-5 years, McCormick's volume growth stays stuck in the low single digits.
Private label is risk number two. Kirkland spices sitting next to McCormick on the Costco shelf isn't new, but recession-nervous consumers trade down. Watch promotional spend in the Q4 reports.
Then there's the broader consumer defensive rotation. If rates stay higher for longer and the market keeps chasing growth, these names stay cheap longer than you'd like.
None of this breaks the thesis. It just stretches the clock. Size accordingly.
Pulling It Together
Dividend King. 4%-plus yield. 14x forward earnings. The biggest selling window of the year sits dead ahead of you. A dividend hike lands in weeks. The fair-value gap north of 40% is yours to close. The business isn't broken; the stock got caught in the AI rotation while you looked the other way. Decide before the hike announcement.
If you want yield without reaching for junk, growth without paying 30x earnings, and compounding without betting on the next hot thing, MKC fits. Build the position methodically between $43 and $47. Collect the dividend. Let the holiday numbers do the work.
Action Recap
✅ Buy Zone: $43 to $47
✅ Catalysts to Watch: Fiscal Q3 earnings (today, before the open), dividend hike announcement (late November 2026), fiscal Q4 earnings (late January 2027)
✅ Medium-Term Target: $60 to $65 over 9-12 months on a multiple re-rate toward 17-18x forward
✅ Risk Management Tip: Reassess if MKC closes below $42 or Q4 earnings show volume declines worse than 2% year over year
Setup Scorecard
Entry Zone: $43 to $47
Target: $60 to $65 over 9-12 months
Stop Loss: Reassess below $42
Catalyst Timeline: Fiscal Q3 earnings Oct 5 before the open, dividend announcement late November 2026, fiscal Q4 earnings late January 2027, holiday selling data through December
Confidence Level: High. A Dividend King at 14x forward yielding 4%-plus with a tight catalyst calendar is a setup worth leaning into.
That’s all for today’s edition of the Dividend Brief.
Thanks for reading, and if you have any feedback or dividend stocks you want me to take a look at, just reply to this email!
—Noah Zelvis
DividendBrief.com
