McCormick (MKC), again

The scorecard says 100. We bought it on a 92.

Run McCormick through the five boxes on today's figures and every box comes back a 20: 39 years paid, 39 straight raises, a 35% payout ratio, a 3.97% yield that sits 78% above the stock's own five-year norm, and a yield well over our floor. A perfect score, the second in the portfolio's history.

We don't believe it, and we said so two weeks ago, before we owned a second share. The 35% payout is an accounting artifact. On January 2 McCormick raised its stake in McCormick de Mexico from half to three quarters, and accounting rules required it to revalue the half it already owned at the new price. That produced a one-time, non-cash gain of about a billion dollars in the first quarter, in a company that normally earns $150 to $225 million a quarter. Trailing earnings nearly doubled, so the dividend looks like a third of profit when, on the earnings McCormick actually generates, it is closer to 60 to 65%.

Our published rule is to score the reported number for every stock, the same way, and explain the distortion. That rule has cost us in the past, when one-time charges made PepsiCo and Medtronic look worse than they were, and it has to work the same way when it flatters a stock. So the recorded score is 100, and the honest score, with the Safe box at a 12 or 16, is 92 to 96. We bought on the 92. It is still tied for the best score of anything we could have bought this week.

Why McCormick is cheap, and why that matters more than the 100

The stock is down 12% from our August purchase and about a third from its 52-week high, while the underlying business grew sales 17% last quarter. A gap like that always has a reason, and here there are two.

The first is the one every packaged-food company has right now: consumers are stretched and volumes have turned slightly negative. The second is bigger and specific to McCormick, and it is the reason we almost didn't buy. McCormick is in the middle of acquiring Unilever's food business, a deal that will more than double the size of the company. Morningstar, which rates McCormick a wide-moat business worth $65 a share, also raised its uncertainty rating to High because of the financing and integration risk, and models the company's debt rising from about three and a half times earnings to six and a half times in 2027 before coming back down. CFRA rates the stock a Sell with a $42 target. Argus says Hold at $45. Both of those targets are below the price we paid.

We weighed that for most of the morning. What tipped it: the dividend is the thing we own, and every forecast we have, including Morningstar's, has it rising each year through 2030. The business that pays it grew last quarter. And a 4% yield from a 39-year Aristocrat at a 30% discount to a wide-moat fair value is what the Undervalued box exists to find. But we want to be plain that this is a different company than the one we bought in August. Aristocrats have cut dividends before when a transformational acquisition went badly, and if McCormick's leverage and integration go worse than planned, this one could too. We'll hold it either way, and we'll tell you.

Two numbers worth stopping on

$2,000.00 deposited. Twenty Mondays, twenty $100 transfers, nothing missed. That number will never go down.

In the green. The portfolio is worth $2,043.99 on $2,011.58 of cost, up 1.6%. For eighteen of our twenty weeks it was worth less than we had put in, at one point by nearly 8%. We said throughout that the value line is noise and the income line is the point, and we still think so. But we would be lying if we said the first green number didn't feel good.

Dividends this week

Two landed. Bank OZK paid its first dividend to us, $1.04, and it came with a raise: $0.49 a share, up from $0.48, exactly the penny-a-quarter cadence we described in week fifteen. Our systems flagged the payment as higher than the published rate, we verified the raise, and the site's income figure for OZK went up a few cents. McCormick paid $0.87 this morning on the shares we already owned. Both went straight into today's buy, $1.91 in all.

Lifetime dividends collected: $11.58, every cent reinvested.

The numbers on this week's buy

• Invested: $101.91, the usual $100 plus $1.91 of pooled dividends
• Bought: 2.1077 shares at $48.35, bringing our McCormick position to 3.9305 shares
• New annual dividend income added: about $4.05 per year, the most since Realty Income in week eighteen
• The portfolio after 20 weeks: $2,000.00 contributed, $11.58 reinvested, worth about $2,043.99, throwing off about $73.63 a year, roughly $6.14 a month
• Sixteen holdings across eleven sectors. McCormick is now about 9.3% of the portfolio, and consumer staples is our second-largest sector at 14%.

The running totals are on the portfolio page, and the slider lets you drag through time to watch the income grow.

That's week twenty. Two thousand dollars in, the first green week, and a perfect score we talked ourselves down from. See you next Monday for pick number twenty-one.

This is not financial advice. We're individual investors sharing our own approach and the reasoning behind our own real decisions, not licensed advisors. We own, or are buying, the stocks we write about in this series. Do your own research and consider speaking with a financial professional before investing. Dividend figures, yields, share counts, and prices are accurate to the best of our knowledge as of the publish date and will change over time.