Kraft Heinz (NASDAQ:KHC) is an appealing consumer goods stock. Backed by Warren Buffett’s Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B), this is a company with the confidence of notable long-term investors. Indeed, the trade-down effect during economic pressures can benefit the company, as people dine out less and buy more groceries. Kraft Heinz’s brand provides the company with a durable competitive advantage, making it well-positioned to capture those consumer dollars.
Let’s discuss some of the main reasons why KHC stock should be included in your stock portfolio.
Earnings Report on November 1
Kraft Heinz will announce its Q3 2023 financial results on Nov. 1, including a pre-recorded management discussion. Following this, a live Q&A session with analysts will happen at 9:00 a.m. Eastern Daylight Time.
Kraft Heinz doesn’t provide quarterly guidance, but analysts anticipate earnings of $0.76 per share, slightly below the previous year. For the full year, analysts expect a 4.3% increase in earnings over the 2022 figure of $2.78 per share. While management hasn’t given specific figures, they anticipate solid earnings growth. However, investments in marketing, distribution and new products may impact margins compared to 2022.
Kraft Heinz aims for earnings growth through cost reduction rather than revenue expansion. In 2020, management said it intended to cut $2 billion in costs over the next five years. Last year, the company announced after years of work, KHC was “no longer at the bottom.” CEO Miguel Patricio said Kraft was cutting away at costs year by year.
Kraft Heinz, owned by 3G Capital and Berkshire Hathaway, has its eye on short and long-term goals. Cost-cutting efforts continue to be a factor in driving earnings growth, easing profit concerns. The main challenge is reviving sales amid changing consumer preferences.
KHC Stock Provides a Dividend Yield of Roughly 5%
Kraft Heinz’s current dividend yield of roughly 4.9% is impressive. That yield has bounced around, with KHC stock actually yielding above 5%, with a quarterly dividend of $1.6, in early October. Dividends have historically been a significant portion of the stock market’s total return, making this an important factor for investors.
Dividend amounts can be unpredictable, often reflecting a company’s profitability. Examining Kraft Heinz’s historical dividend chart can help assess the likelihood of a consistent 5% annual yield.
That said, it’s my view this dividend is likely sustainable (and could potentially grow) over time. Investors looking for a company with robust and steady cash flows to support its dividend can’t go wrong owning this name.
What Makes KHC Stock a Good Investment
Kraft Heinz owns well-known brands like Kraft, Heinz, Oscar Mayer and more. Strong brands remain valuable during inflation. While some may switch to cheaper options in tough times, many stay loyal to preferred brands, even with higher prices. Significant price hikes usually push consumers to switch to cheaper alternatives.
The company has managed to raise prices without significantly hurting sales volume, leading to a 9.4% year-over-year organic revenue growth in Q1 2023. Higher prices contributed positively by offsetting a slight decrease in volume. That pricing power boosted the company’s net income by 7.1% year-over-year in the first quarter.
What Now?
Kraft Heinz appears appealing based on adjusted earnings and offers a high dividend yield. Yet, the dividend yield is driven by a declining stock price, not dividend growth. The company’s financial health remains a concern, with limited cash on-hand and substantial debt. High-interest payments have been a significant expense, consuming a substantial portion of operating profit in 2022.
In summary, Kraft Heinz stock offers a mixed investment profile. It’s suitable for long-term investors seeking value and a high dividend yield, even though dividend growth prospects are limited. The company’s strong brands and pricing strength should provide stability during economic downturns.
On the date of publication, Chris MacDonald has a long position in BRK-B. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
