When looking for a new dividend stock to add to your portfolio, there can be something said for buying boring consumer staples. We all need to eat, brush our teeth and clean our bathrooms regardless of what the global economic situation is. That fact produces some pretty stable and stoic cash flows at these firms. In turn, those cash flows power steady and rising dividends for shareholders.
And when it comes boring dividend stocks, nothing could be more unexciting than corn flakes. Specifically, Kellogg’s (K) corn flakes.
K stock has been a steady performer on the dividend stock front for years — powered by boring corn flakes. And yet, there’s still plenty of growth for the firm. All in all, investors looking for a high-yielding dividend stock, K shares could be it.
A Dividend Stock With Growth Potential
For Kellogg and K stock investors, there’s beauty in hum-drum. Founded in 1906 and incorporated in 1922, Kellogg has been serving up breakfast for decades. In its latest earnings report, K managed to sell nearly $3.69 billion worth of cereal, breakfast pastries and other packaged foods — with its core cereals business accounts for roughly 40% to 45% of its sales. That business unit includes such giants in the cereal world as Special K, Froot Loops and the previously mentioned Corn Flakes.
While organic growth in its core North American cereals business has roughly flat-lined since the end of 2012 — and actually declined slightly during the last quarter — it still produces plenty free cash flows to help fund its dividend and other endeavors. That’s the boring part of K stock.
But the growth for Kellogg isn’t coming from breakfast cereal. It’s coming from snack and natural food products — both in the U.S. and overseas.
Over the last few years, K has expanded heavily into snacks and natural foods. It bought brands like Procter & Gamble’s (PG) Pringles potato chips in 2012 and launched Morningstar Farms and Garden Burger to tackle healthier lifestyles, not to mention moving into the nutritional/high protein shakes sectors. These efforts seem to be working. Sales of these products have been steadily rising at Kellogg and have helped reduce the pain from its base-line cereals businesses.
As North America has declined, Kellogg continues to rack-up major wins internationally. During the quarter, sales in Europe, Asia and Latin America all improved through organic means. Latin America alone saw a 6.9% jump as its products have gain market share in rising middle class nations like Brazil and Mexico.
Additionally, the company has continued to expand into other emerging markets such Malaysia, South Africa and Thailand — mostly through buyouts of local cereal and packaged food products companies. Its latest foray includes running due diligence for a potential buy of Egyptian cookie and confectionery-maker Bisco Misr.
Another avenue of potential growth for Kellogg stock is revamping that boring cereal business. Kellogg recently unveiled a $1 billion plus effort — dubbed Project K — to help restructure and remove the malaise in its core North American cereals businesses. Kellogg hopes to boost relevant advertising and use innovation to take back America’s breakfast tables and boost that sector’s flat growth.
The Nitty Gritty Of Kellogg As a Dividend Stock
Kellogg’s boring cereals business will maintain its reputation as a dividend stock while new avenues for growth help boost the payout.
Kellogg stock currently has a marketing-beating yield of 3.2%. More importantly, the company been growing that dividend pretty robustly over the last few years. It’s consistently grown that payout over the past 9 years, and in the past 3 years the payout on Kellogg stock has jumped 13% to sit at $1.96 annually.
As for Kellogg stock itself, shares are cheap. Recently analyst downgrades due to the struggling North American cereals businesses have taken the shares down a few pegs. Currently, K stock can be bought for a price-to-earnings ratio of just 12. That price plus the juicy 3% yield make K one of the best dividend stocks to add to their portfolio.
And if Project K begins to take hold and its intentional operations continue to perform, there could be some significant share price appreciation as well. Credit Suisse estimates that Kellogg stock shares could be worth $71 by the end of 2015. That’s about 11% higher from today’s selling price.
The Bottom Line: For investors looking to add a new dividend stock to their portfolio, it pays to be boring. Kellogg stock offers a great balance of growth and stability.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.