Breakfast With a Side of Dividends

Today, we’re going to look at a stock straight out of the reader mailbag. Readers James and Greg wrote me and asked for my thoughts on an interesting dividend payer. Its products are purchased by 97% of US households, and its trailing twelve-month (TTM) yield is a whopping 10%.

Adams Foods Inc. started in 1957 as a feed delivery service outside Jackson, Mississippi. A year later, its first chicken farm on leased property was added. By 1963, its chicken business had expanded into the world’s largest egg farm. In 1969, the company merged with Dairy Fresh Produce Company and Maine Egg Farms.

The merged company supplied eggs from California to Maine—and Cal-Maine Foods (CALM) was born. The company remains the largest egg producer in the US.

Over the past two years, the company has moved into the prepared foods market through a strategic venture with Crepini Foods LLC and the acquisition of Echo Lake Foods.

Cal-Maine will launch a $15 million optimization and expansion project at Echo Lake Foods. It is expected to add 1.7 million pounds of annual scrambled egg production by 2027.

The company sees growing consumer demand in the high-protein, ready-to-eat, and convenience products markets. It plans to use these segments to shape the future of the portfolio while the conventional egg business provides stability. And it looks like the plan is working.

A Look at the Numbers

The company’s latest earnings call on October 1 was the first to be held live. This is part of new efforts to deliver transparency to shareholders. It was also the strongest first fiscal quarter of earnings in company history.

Net sales were $922.6 million, up 17.4% year over year. Broken down by segment:

• Conventional shell eggs: $505.9 million, up 4.4%

• Specialty shell eggs: $283.5 million, up 10.4%

• Prepared food: $283.5 million, up 839.1%

Specialty eggs include cage-free, organic, brown, free-range, pasture-raised, and nutritionally enhanced. Prepared foods include pre-cooked egg patties, omelets, pancakes, and waffles. These two segments are expected to fuel future growth, and we can see early proof of success in the numbers.

Gross profit of $311.3 million was up 25.9% year over year. Diluted earnings per shares of $4.12 was up 34.6%. And net income of $199.3 million was up 32.9%. Net income is the most important number for dividend investors.

CALM pays out one third of its quarterly net income to shareholders as a dividend. This isn’t a guideline, it’s a hard calculation done at the end of each quarter. If you’re considering adding CALM to your portfolio, this could be your dealbreaker.  

The Big Question

Should you add CALM to your income portfolio? That depends on your goals. A variable dividend policy shouldn’t be an automatic dealbreaker, but it should be part of your consideration.

The great part about an income-based dividend policy is that the company will always have a desirable payout ratio. It will not pay out more money than it has by using credit. The dividend is paid as a share of net income it has in hand.

The rub is net income will change every quarter… and not always in a higher direction. The result is a variable dividend. If you need dividend income to pay your bills, this is probably not enough predictability.

Here’s a look at the last ten years of CALM’s quarterly payments:

You can see that if the company reports a quarterly loss, no dividend is paid. This hasn’t happened since the January 2022 payment. October 2023’s payment was so low—just 0.6 cents per share—it doesn’t register on this chart. The quarterly payment has ranged from the recent $1.378 to April’s $3.495 over the past year.

This past year has been great for CALM shareholders, earning a TTM yield of 10%. But that doesn’t mean we’ll see that repeat in 2026.

Management said it wants to continue the growth in both specialty eggs and prepared foods. It will also stay focused on M&A opportunities that “meet strict financial return thresholds.” Keep in mind that companies in growth periods, at least in the short term, may need to invest money back into the business instead of paying dividends to shareholders.

Eggs are a great example of a consumer staple that people will buy no matter what’s going on in the economy. And CALM is the largest egg producer in the US.

If Cal-Maine can maintain the sales momentum from its recent prepared foods acquisition through 2026, I expect to see the dividend and share price continue to rise. Just make sure your budget doesn’t rely on steady income in case the dividend drops for a quarter or two.

For more income, now and in the future,

Kelly Green