Kraft Foods Inc., together with its subsidiaries, manufactures and markets packaged food products and grocery products worldwide. The company has consistently raised dividends since it went public in 2001. It was a part of tobacco conglomerate Altria Group (MO), until Kraft was spun off in May 2007.
As a company whose management shared the values of Altria group (MO) to consistently reward shareholders with dividend increases and share buybacks, Kraft (KFT) has attracted the interests of many dividend investors. While it has raised distributions for only seven consecutive years, many investors didn’t see this as a problem, but believed that the company would soon join the ranks of the elite dividend achievers.
Just last week the company announced that it has would leave its current dividend payment of $0.29/share unchanged for the fifth consecutive quarter. In addition to that there were no share repurchases in first quarter 2009, and the company's authorization to repurchase shares expired on March 30, 2009.
The major news about Kraft has been its attempted takeover of Cadbury (CBY). The board of directors of Cadbury has rejected the offer so far, citing the fact that it undervalues the company. Other issues related to this takeover would include competing bidding from rivals Nestle or Hershey (HSY). This could make the acquisition of Cadbury (CBY) pricier than initially expected, and Kraft might have to pay top dollar if it really wanted to own the British based confectionery company.
Prominent dividend companies which are typically engaged in mergers and takeovers of a large proportion and which end up overpaying might need a lot of cash fast. Thus freezing or cutting the dividend payment should not be an uncommon factor in such situations.
The deal would definitely be accretive to Kraft and its owners in the long run. If the merger with Cadbury were completed, Kraft Foods would expect to revise its long-term growth targets to 5+% for revenue and 9-11% for earnings per share, from its previously announced 4+% and 7-9% respectively. If it overpays however, those estimates not only might have to be revised downwards, but it would be Kraft’s shareholders that would ultimately pay the price in terms of dividend cuts or freezes.
I was planning on initiating a position in Kraft before the announcement on September 8, but I would wait for the acquisition to unfold before I take any action. The company has four more quarters where it can afford to keep the distributions unchanged. Should it increase them within that time frame and also should it manage to earn approximately $1.95-$2.00/share in 2009, I would consider initiating a small position there. Without any dividend growth, even the best yielding stock would eventually erode your purchasing power due to inflation.
Full Disclosure: None
- Dividends versus Share Buybacks/Stock repurchases
- Altria Group's 6% Dividend Hike
- Should you sell after a dividend freeze?
- Why do I like Dividend Achievers
This is a guest post by Mike, aka The Dividend Guy. He authors The Dividend Guy Blog since 2010 and manages portfolios at Dividend Stocks Ro...
Dividend growth stocks are the gift that keeps on giving . I like the fact that most of the work in selecting good dividend growth stocks is...
I have shared with you early in the year, that I am essentially living off dividends and side income in 2016. I am saving my other income i...
Last week I shared with you the list of 2016 Dividend Aristocrats and its performance over the past decade . In addition, I isolated twenty...
I pick my own dividend paying stocks in my taxable accounts, and wouldn’t have it any other way. I know some of you have mentioned that they...
Mark Seed is passionate about personal finance and investing and is the blogger behind My Own Advisor . Mark is currently investing in divi...
I am a fairly frugal person . An example of that is the fact that I drive a 15 year old car. I would likely keep driving this car until all ...
This is a guest post from Keith Park, who writes about dividend investing on DivHut . Keith has been a dividend growth investor since 2007 f...
My retirement strategy is focused on building a dividend portfolio of high quality blue chips, which are reliable dividend payers. For my di...
This is a guest contribution from Liquid at Freedom 35 Blog . Liquid is an avid investor in the North American financial markets and blogs a...