H.J. Heinz Co. (HNZ) is known around the world for its tomato ketchup. But after posting a 5% gain year-to-date as the rest of the stock market has lost ground, and after a strong earnings report and a recent dividend increase that boost the company’s dividend yield, HNZ stock is becoming well known as a great low-risk investment for income focused trading strategies.
Heinz is a conservative stock, to be sure, but that doesn’t mean it is boring and sluggish. On May 28, HNZ announced earnings that showed strong growth. For the first quarter, the company earned $192.4 million, or $0.60 per share, compared with $175.1 million, or $0.55 cents per share, in 2009. Sales increased 8.3% to $2.72 billion, while volume rose 1.6%, led by the company’s ketchup and sauces brands. Analysts had expected Heinz to earn $0.59 cents per share on revenue of $2.75 billion so the company posted a 2% earnings surprise.
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Growth throughout the Asia-Pacific region helped it to increase its net income by 9.8%. Growth throughout Asia topped that of both Europe and the United States. As a result, the big blue raised its dividend $0.12 to $1.80 and offered guidance for the balance of the year that is in line with analysts’ expectations. That places the stock’s current dividend yield at about 3.8% at current valuations.
I am pleased with the Heinz results and am not surprised that the company is targeting Pacific Rim countries for future aggressive sales growth. Some of the strongest economies in the world right now are Pacific-based (China, Japan, Singapore, South Korea) and I expect to see continued strong sales numbers from this region fueling future growth at Heinz.
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Heinz said that it spent 63% more to market its leading brands during the quarter compared with a year earlier. The increased marketing is responsible for the company’s sales growth, said company CEO Bill Johnson. He added that Heinz intends to continue the aggressive marketing of its brands throughout the Asia-Pacific region in order to capitalize on those growing economies. Heinz is targeting Russia, China, India and Indonesia for future growth and predicts that these countries alone could account for almost 25% of its long-term growth.
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Finally, Heinz said that the Asia-Pacific region now accounts for 20% of its sales. North America and Europe account for 62% of sales. Sales increased in the Pacific Rim by 27% while sales in North America and in Europe increased roughly 7% in each region. Heinz is an A-rated stock on my evaluation screens. I remain very confident that this consumer staples company will continue its excellent growth for the remainder of the year.
This great growth coupled with a high dividend yield makes Heinz a perfect income investment.
As of this writing, Louis Navellier was recommending Heinz to subscribers of his Blue Chip Growth investment newsletter.
