After an inspirational discussion with Lanny over the weekend, I was looking to come out of the gates firing on Monday. I was excited for the opportunity to add to my portfolio. “firing out of the gates” may not be the best way to describe this purchase. Overall, it wasn’t the largest. But I was excited for the chance to add some nice income and continue to build a position in my portfolio . Here is why I added to my position in Kraft Heinz (KHC)!
Why Kraft? Why Now?
My last three purchases have been made to build positions that I already owned. Thanks to my brokerage transfer, I have free stock purchases for a three-month period. These free purchases have allowed me to add small amounts of capital to certain positions that I haven’t considered “full.” AKA, I would love to add to this position at some point and build a larger one.
KHC has always been one of those positions for me. It was actually one of my first dividend growth stock purchases way back in the day. I purchased Kraft prior to the merger with Heinz and post-the initial spin-off. After my first purchase, the stock-price shot off like a cannon and I was kicking myself for not buying more at the time. I love consumer staple stocks and KHC has some of the best brands out there. Their brands include Kraft, Heinz, Oscar Meyer, Jello, Maxwell House, Valveeta, Smart Ones, Capri Sun, and so on! After years of watching the price sky-rocket, I was excited to get a chance to purchase the company at a lower valuation, potentially. That is a great segue into our next section!
Dividend Diplomats Stock Screener – KHC
With every purchase, we run the company through the infamous Dividend Diplomats Stock Screener. This is our simple stock screener that helps us identify potentially undervalued dividend growth stocks. For this analysis, we used my purchase price of $57.93/share and an average forward EPS of $3.71 (per Yahoo Finance. Here we go!
- P/E Ratio – Using the figures above, I calculated a P/E Ratio of 15.6X. This is well below the S&P 500 value, which is in the low 20X range. Pass!
- Payout Ratio less than 60% – KHC’s annual dividend rate is $2.50/share. Thus, I calculated a dividend payout ratio of 67%. For our screener, we start with a 60% threshold as we believe this allows a company to continue to grow their dividend going forward. A significant higher ratio (between 90%-100%), would indicate that a company is paying out nearly all of their earnings. Barring some exceptions based on industry standards, this typically isn’t sustainable. And consumer products are not in the “exception” category for industries. Am I concerned that their payout ratio is slightly above our stock screener? Not really. 67% isn’t causing me to lose sleep over night. However, I will monitor this going forward to make sure the ratio doesn’t creep too much higher.
- History of Increase Dividends – Now here is the tricky one. The company has increased their dividend every year since the initial Kraft spin-off. Prior to spin-off, the company was a dividend paying company. After, the company is as well. Heck, Kraft has Warren Buffet on the sidelines. That should be music to a dividend growth investor’s ears. However, the company did not announce a dividend increase in August as expected. Now, KHC has gone five quarters since their last dividend increase and this has caused investors to pause. There is a lot of speculation about why they dividend not increase their dividend (i.e. holding cash for an acquisition). But at the moment, speculation is all that it is. Overall, there could be more to the picture and I’ll definitely be concerned if the company continues to maintain their dividend rather than increase it. If they don’t announce an increase by February, we may have a different discussion. However, I’m not concerned for a few reasons. I like the company’s yield and the company has increased their dividend in recent past. Even if that recent path was not in August. Lastly, I’m not talking about a large purchase here. Rather, I am adding a small amount to a current position.
- Dividend Yield – Last, but not least, I reviewed the company’s dividend yield. Currently, KHC is yielding 4.3%. This is above my portfolio’s average dividend yield. It is always a plus in my book.
The purchase – KHC
After the screener, I was comfortable adding to my position in KHC. I added 10 shares of KHC at $57.93/share, totaling $579.30 since I had a free trade. This purchase added $25 in annual dividend income to my portfolio! Now, I own 50.425 shares, which produces $126.06 in forward dividend income. My position is closing in on $3k in market value. However, I don’t consider this a “full” position by any stretch of the means. If the price continues to decline, I may have to continue building this position!
What are your thoughts about my purchase? Are you a fan of KHC at the moment? Or are you concerned about their dividend growth? Do you think they will announce a dividend increase in November?
-Bert
Bert,
I just added to my KHC holdings recently too. I believe the death of packaged foods is over blown, especially considering we will see how people behave during the next recession or economic downturn (it will happen, when is the impossible question). Additionally, groups like KHC are able to gobble up the upstart ‘healthy food companies’, so I suspect they will be fine weathering most any storm. Plus that 4%+ yield is sweet!
– Gremlin
Gremlin,
Nice pickup as well! Interesting point about their ability to acquire new, innovative brands. They are on the hunt to add new brands and those healthy food companies and options are there for the grabbing. Would be a nice compliment to their already awesome brand portfolio.
Bert
I have been looking at KHC a few times but so far haven’t pulled the trigger. I like their brands, so I’m still keeping them on my watchlist. I did however make a few other purchases!
Some new purchases, eh. I’m looking forward to reading about those! What else are you keeping your eye on?
Bert
I like it! KHC is a holding I’ve added to my portfolio this past year and is trading at a very reasonable valuation IMO. With GIS experiencing a steep slide this morning back down near 52 week lows, I may consider adding to this position as well.
PIV,
Thank you very much! I did see that GIS decreased a lot today and I can’t to read more about it. I want all the consumer stocks haha I agree, KHC has a reasonable valuation for sure and that is exactly why I added them! Glad you’ve been adding to them over the year.
Bert
Bert,
Congrats on adding a staple to your portofolio. I looking forward to add KHC down the line hopefully the price will still be around $58 or close to it.
Cheers
Dividend Pursuit
Dividend Pursuit,
Thank you very much. If the price stays in this neighborhood, I’ll continue to add for sure. So I’m with you, hopefully it stays in this arena!
Bert
I’m still a long term fan of KHC. Like you, I have held it for a long time. In fact, I had it pre-MDLZ spin off and plan to continue holding this high yield name. The stock had a rough 2018 as with all consumer staples selling food but has come back nicely in the summer only to fall further. I wouldn’t mind nibbling on this name again at current levels. GIS is taking a beating today. Might have to revisit that name too. Nice yield. Keep on buying.
Keith,
Couldn’t agree more with your comment. I am hoping the growth will resume here shortly. But the valuation is right and I am willing to add and wait based on their history and brands. I’l be checking out GIS here as well after the decrease! As always, thanks for stopping by.
Bert
Nice purchase Bert, I like it. KHC is one of the companies that I also would like to own in my portfolio (don’t own it yet). The lack of dividend growth (and sales growth in general) worries me, but I think it’s still a nice company to hold.
SD
SD,
Thanks for the comment. I’m sure you have a nice, long watch list of many great options to pick from 🙂
Bert
Nice buy, Bert. I don’t own KHC at the present time, but it’s certainly a name that I would consider adding to my portfolio at some point in the not too distant future.
Kody,
Thank you very much! Let me know if you decide to add them to your portfolio.
Bert
This is going to be my next purchase for sure! I’m just waiting on this money to come ring in from the home. I’m itching to set into these 52 week low companies.
Money, money Diligent. I like it! What other companies are on your watch list here.
Bert
nice Buy Bert
Always nice to add to positions on their dips. I like kraft heinz. Dont own them personally but use alot of their products!
keep stacking those divs.
cheers
Thank you very much PCI! Thanks for supporting my stocks bottom line 🙂
Bert
Let’s hope we get a dividend increase in the next quarter or so. Tom
Tom,
I’ll have my fingers crossed right there with you!
Bert
I bought a lot of KHC this year in my Roth IRA, but I am partial to packaged food companies and there may be better dividend investments available. Always struggling with best stocks for the limited Roth capital, but I think KHC is a solid add for the LT divi port. Love your blog and obsessing over your dividend income goals. Hope the Browns win one for you soon.
Equity,
Thank you very much, that’s kind of your. If you bought a lot already, why not look elsewhere? You’re right, there are a lot of other great opportunities out there. I had looked elsewhere before KHC, so the timing was just right to add to my position. And trust me, I hope the Browns win one soon. It is becoming comical how many different ways this team can find ways not to win a football game.
Bert
Solid choice Bert. While I don’t own them because I already have a good deal of consumer staples, I think the numbers look attractive. Keep feeding the machine!
Hi Bert,
I am currently evaluating the KHC stock and would like to hear your thoughts. I know this article was written while ago but considering the current situation are you still in favourable fro this stock. Also, looking their current debt, don’t you think there is a lot of risk there to invest?
Thank you!!
Best,
Nikos