Lancaster Colony (LANC) has a dividend track record that few companies can rival. The company has increased its cash dividend for 55 consecutive years after the February increase to 60 cents per share quarterly. Continuous quarterly dividends have been paid since 1963 and that makes LANC one of just 14 companies in the entire market with a dividend increase streak of that length. That puts the company among the elite Dividend Kings, a small group of stocks that have increased their payouts for at least 50 consecutive years. You can see the full list of all 25 Dividend Kings here.

Dividend Kings are the best of the best when it comes to rewarding shareholders with cash and this article will discuss LANC’s dividend and valuation outlook.

Business Overview

LANC began its operations back in 1961 after several small glass and related housewares manufacturing companies combined together. The new company almost immediately began rewarding its shareholders with quarterly cash dividends and eventually went public in 1969, the same year it began operations in the foodservice business with the Marzetti brand acquisition.

The company manufactures and distributes a fairly narrow product assortment split into two major categories: frozen and non-frozen. It makes salad dressings and various dips under the Marzetti brand, frozen breads under the Sister Schubert’s and New York brands, as well as caviar, noodles, croutons, flatbreads and other bread products under a variety of smaller brands. The Marzetti and New York brands are the cash cows for LANC, offering its core products of dips and dressings as well as croutons and frozen breads, respectively. LANC sells what amounts to accessories for meals and does it very well.

Source: Company website

LANC also has partnerships with major consumer brands like Olive Garden, Jack Daniel’s, Buffalo Wild Wings (BWLD) and Weight Watchers (WTW), licensing the respective trademarks to produce products for grocery store shelves. A portion of the proceeds of these products goes to the license owners but these agreements are a way for LANC to diversify away from its own core brands.

LANC’s market cap is just over $3billion and the company is expected to produce about $1.2 billion in revenue this fiscal year. Over 95% of LANC’s sales are made in the US so currency risk is not a factor. It sells its products through the Retail and Foodservice divisions, offering its frozen and non-frozen products through those channels.

Two-thirds of LANC’s total sales are non-frozen products like dressings, dips, flat breads and croutons. The remaining third is frozen products like garlic bread and yeast rolls. Lancaster has leadership positions in its core brands including New York, Sister Schubert’s, Flat Out (flat breads) and Marzetti while it is more focused on growth with its smaller brands.

One major risk to LANC’s revenue streams, however, is its reliance upon two major distributors. Wal-Mart (WMT) represented 17% of total sales for LANC in 2017 and also holds a significant accounts receivables balance. WMT could decide to offer less shelf space to LANC’s brands, offer additional competitive products or decide to stop carrying the brands altogether. LANC’s reliance upon WMT is high on its own but when you combine it with its similar reliance upon McLane, it is a bit more worrisome.