Kraft Foods: Right for Retirement

by Adam Benjamin | August 16, 2013 2:00 pm

Kraft Foods (KRFT[1]) has taken a bit of a beating in the past month.

As of right now, Kraft would appear to be doing well, up more than 17% since it split off from Mondelez International (MDLZ[2]) last year, outpacing the S&P 500 (up 14%) and MDLZ (down 23%) in that time.

However, the company has shed roughly 8% in the past few weeks, and Warren Buffett just cut his position[3] from shares. That has to be reason for worry, right?

For short-term investors, sure — that’s a big move for what’s supposed to be a glacially moving foods company. But the recent dip might be an attractive pick-up spot for investors planning for retirement.

As of this writing, KRFT was paying out a 50-cent quarterly dividend that currently yields 3.8% — that’s a payout that speaks for itself, and a payout that’s not going anywhere soon.

For one, that’s because Kraft Foods and its brand brigade aren’t going anywhere soon. Not only have brands like Oscar Mayer, Jell-O and Maxwell House survived the test of time, but Kraft has been actively trying to reinvigorate these and other product lines to ensure they’re more than just names your parents remember growing up with. Not to mention, KRFT pays out roughly 49% of its earnings in dividends — sure, that’s more than the S&P 500 average of about 35%, but Kraft isn’t stretching to make its payouts, and even has room to improve it.

It’s important to note that KRFT’s recent share decline isn’t coming on much bad news on the Kraft front. Its most recent quarterly earnings report did include revenues of $4.7 billion that were a bit below the $4.8 billion analysts expected. However, earnings jumped from $603 million a year ago to $829 million this quarter, and its adjusted profits of 76 cents beat the Street consensus by a full dime.

Even better, KRFT hoisted its full-year forecast from $2.75 per share to $3.40 thanks to a one-time pension plan benefit.

As with all stocks, there are risks. Economic recovery is still pretty slow, and while food is a necessity, brands are always subject to consumer discretionary activity. KRFT, for instance, blamed its revenue miss on weak sales of cold cuts and salad dressings, and in general, consumers’ food consumption is always subject to whims and health fads.

But with a solid dividend backed by oodles of cash and a range of popular brands, Kraft looks like a good long-term play whose price just became a little more attractive.

Adam Benjamin is an Assistant Editor of InvestorPlace. As of this writing, he did not hold a position in any of the aforementioned securities.

  1. KRFT:
  2. MDLZ:
  3. cut his position:

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