One of the main draws of Kraft is its exceptional dividend. The company pays a $0.50 quarterly dividend, which works out to a projected dividend yield of about 3.75%. Kraft Foods Group Inc (NASDAQ:KRFT) is a member of my Ultimate Dividend Growth Portfolio, which you can track here, largely because of this above-average yield. Mondelez International Inc (NASDAQ:MDLZ), the other company to emerge from the Kraft spin-off, pays a dividend projected to yield just 1.67%.
Mondelez is made up of the global snack business of the old Kraft and includes brands like Oreo, Cadbury, and Nabisco. Since Mondelez sells in various emerging markets the company’s growth is expected to be faster than that of Kraft Foods Group Inc (NASDAQ:KRFT), and the dividend growth will likely to be faster as well, but the terrible yield makes the stock a non-starter. For comparison, the average analyst estimate for annual earnings growth is about 13% for Mondelez International Inc (NASDAQ:MDLZ) and about 6% for Kraft.
ConAgra Foods, Inc. (NYSE:CAG) is another large packaged food company, with brands such as Hunt’s, Pam, Healthy Choice, Chef Boyardee, and Hebrew National. ConAgra pays a solid 2.8% dividend, far better than Mondelez but still a full percentage point less than Kraft Foods Group Inc (NASDAQ:KRFT). The real problem with ConAgra, however, is that the dividend is actually about the same as it was a decade ago. In 2006 ConAgra Foods, Inc. (NYSE:CAG) slashed its dividend, and just now it’s clawed its way back to 2003 levels. And what’s worse, the payout ratio in fiscal 2012 was over 80%, meaning that dividend growth going forward will likely be slow at best.
The bottom line
Kraft Foods Group Inc (NASDAQ:KRFT) had a great quarter, with operating profit up 9.2% on modest revenue growth. The stock surged on the earnings release, so the market seems to agree. Kraft is a slow growing business but with cost-cutting efforts and strong brands the company should prosper for years to come. The 3.75% dividend is one of the best you can find in the food industry, and I expect that the dividend will grow at a reasonable rate going forward.
The article A Strong Quarter For This Food Giant originally appeared on Fool.com and is written by Timothy Green.
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