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4 food ideas to feast on

Food businesses offer the interesting combination of commodity businesses and reasonably defensive earnings. Food is fairly defensive in my opinion because we all have to eat.

The below food ideas all trade fairly cheaply with a nice trailing dividend thrown in. Here are some tasty ideas:

Tassal Group Limited (ASX: TGR)

Tassal is the large Tasmanian salmon farmer which has been steadily growing its earnings per share and dividend for a number of years.

Australians are slowly but steadily improving their eating habits and salmon is forming a part of that improved diet. Tassal is trading cheaply at 10.5x FY18’s estimated earnings with a grossed-up dividend yield of 5.58%.

Select Harvests Limited (ASX: SHV)

Select Harvests is one of Australia’s largest almond growers. Management are expecting a total crop of 13,500MT to 14,000MT this year but hope to build its crop up to 20,000MT by 2021.

To effectively ‘buy low’ you have to be willing to buy whilst the share price is under pressure. Select Harvests is currently trading at 17x FY18’s estimated earnings with a trailing grossed-up dividend yield of 10.2%.

Retail Food Group Limited (ASX: RFG)

This is the franchisor business behind a number of chains such as Gloria Jean’s, Cafe2U, Brumby’s, Crust Pizza and Michel’s Patisserie.

I am not the biggest fan because I think the business will find it hard to grow organically over the long-term. However, the business could still grow underlying earnings per share and the dividend, which could generate good returns at the current price.

It’s currently trading at 11x FY16’s earnings with a grossed-up dividend yield of 9.43%.

Rural Funds Group (ASX: RFF)

This is a slightly different idea to the other three. It is a real estate investment trust that leases out farmland to high quality tenants such as Select Harvests and Treasury Wine Estates Ltd (ASX: TWE).

I wouldn’t expect explosive growth but its nice quarterly distribution combined with its solid rental increases could see it continue to be a market beater.

Rural Funds Group is currently trading with a trailing distribution yield of 5.27%.

Foolish takeaway

I think all four shares are good businesses and worthy of consideration. Select Harvests and Retail Food Group are a little too risky for me, so I would choose Tassal and Rural Funds Group at the current prices because their earnings are more consistent and growing.

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Motley Fool contributor Tristan Harrison owns shares of RURALFUNDS STAPLED and Select Harvests Limited. The Motley Fool Australia owns shares of Retail Food Group Limited and RURALFUNDS STAPLED. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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