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Kellogg Co. (K)

 

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The Kellogg Company is a multinational food manufacturing company headquartered in Battle Creek, Michigan, that produces cereal and convenience foods, including cookies, crackers, toaster pastries, cereal bars, fruit-flavored snacks, frozen waffles, and vegetarian foods. The company's brands include Froot Loops, Apple Jacks, Corn Flakes, Frosted Flakes, Rice Krispies, Special K, Cocoa Krispies, Keebler, Pringles, Pop-Tarts, Kashi, Cheez-It, Eggo, Nutri-Grain, Morningstar Farms, and many more. Its products are manufactured in 18 countries and marketed in over 180 countries. Kellogg is considered a defensive stock, because it provides a constant dividend and stable earnings, regardless of the state of the overall stock market, because of the constant demand for its products. As a defensive stock, it tends to remain stable during the various phases of the business cycle, and tends to perform better than the broader market during recessions.


Its current total market capitalization of $22 billion makes K a large capitalization stock (a large-cap stock has a market capitalization value of more than $10 billion) with a long history of consistent dividend payments, revenues and earnings growth. It is considered a solid and well-diversified business with a wide economic moat and a sustainable competitive advantage over its rivals, which also enjoys a solid management and corporate culture. Kellogg has paid dividends to investors since 1923, and has increased its payments for fifteen consecutive years. During the past five years has increased its dividends at an average rate of 3%, and its quarterly payment of $0.57 per share currently provides a yield of 3.59%.


The value of dividends reinvested: A hypothetical investment in Kellogg Company has grown cumulatively (including dividends reinvested) 6,776.08% during the past forty years. The same investment has grown only 2,519.43% in the same period of time, excluding dividends. According to the data and calculations of the financial website dqydj.com (don’t quit your day job), a periodic monthly investment of $100 in K for the past 40 years would has grown to $746,117, including dividends reinvested. The dividend is well covered by earnings, since its Dividend Payout Ratio (DPR) (dividend payments as a percentage of its earnings), is 72%.


Its current Price to Earnings ratio (P/E --a measure of valuation) of 20.08 is 24.6% below the US Market Index. The forward P/E ratio is 15.67. Its Price to Sales ratio (P/Sales) of 1.62 is 35.2% below the US Market index, and its Price to Cash Flow of 13.43 is 11.1% below the index. According to Morningstar, the stock is trading at a 23% discount, making it attractive for investors with a long-term investment horizon. Technically (from the chart’s perspective) K also looks attractive, trading 25.9% below its all-time high), while it is forming a long price consolidation pattern between $72 and $52 approximately, in which $52 is acting as a strong technical support level.


The index funds Vanguard Total Stock Market Index and Vanguard 500 Index are major shareholders of K, holding 2.11% and 1.50% of its shares respectively. K’s main competitors are General Mills Inc. (GIS) and Mondelez International Inc. (MDLZ). Kellogg’s 5-year Beta (a measure of the volatility or systematic risk in comparison to the market as a whole as evidenced by the S&P 500® Index) is 0.60 so the stock is 40% less volatile than the Market.


Best and worst years during the past 40 years: Its best year was 1985, in which K returned, excluding dividends, 73.8%. On the flip side, its worst year was 1998, when the stock declined 31.2% also excluding dividends. Kellogg’s dividend reinvestment plan charges no fees for cash investing, dividend reinvestment, safekeeping, automatic investment or termination of the plan. With the stock being fundamental and technically attractive, this company might be an appropriate holding for investors who wish to build a holding over the long term.


Disclosure: Mario Medina has no position in Kellogg Company and has no plans to initiate any position in the immediate future. The author wrote the article himself and it expresses his own opinions. The author has no business relationship with K and this article is not intended as a recommendation to invest as the information published does not take into account any subscriber's personal finances, goals or risk tolerance. Accordingly, you should be aware of all the risks associated with any financial investment and should consult an independent financial advisor for any personal investment advice. Past results illustrated in the article are for reference and educational purpose only and do not guarantee future performance.