Gurufocus.com ran an article yesterday on “High-Dividend Yielders for 2012”. Kraft (KFT) was one the five stocks recommended in the article. Apparently the author of the article thinks that a 3% dividend yield is a high dividend. I think that a stock needs to yield at least 6% to be considered a high dividend stock. Kraft has very stable earnings, but it is overpriced right now . Read on to see when Kraft was a value stock worth buying.
Kraft (KFT)
Price: $38.29
Shares: 1.77 billion
Market capitalization: $67.71 billion
Preferred stock: none
Bonds: $26.5 billion outstanding. The outstanding bonds are not a threat to the dividend this year.
DIVIDEND RECORD: Kraft has been an excellent dividend grower since 2001. The annual dividend has grown from $0.26 annually to $1.16. I don’t know if they paid a dividend before 2001.
Dividend: $0.29 quarterly
Dividend yield: 3.0% ($1.16 annual dividend / $38.29 share price)
Dividend payout: 58.3% using 2011 EPS of $1.99 –OR- 63.7% using average adjusted earning power of $1.82. Kraft is a dedicated dividend payer.
EARNING POWER: $1.82 @ 1,772 million shares
(earnings adjusted for changes in capitalization – typically share buybacks and/or additional shares created)
EPS | Net income | Shares | Adjusted EPS | |
2007 | $1.62 | $2,590 M | 1,594 M | $1.46 |
2008 | $1.90 | $2,884 M | 1,515 M | $1.63 |
2009 | $2.03 | $3,021 M | 1,486 M | $1.70 |
2010 | $2.39 | $4,114 M | 1,720 M | $2.32 |
2011 | $1.99 | $3,527 M | 1,772 M | $1.99 |
Five year average adjusted earnings per share is $1.82
Consider contrarian buying below $14.56 (8 times average adjusted EPS)
Consider value buying below $21.84 (12 times average adjusted EPS)
Consider speculative selling above $36.40 (20 times average adjusted EPS)
Kraft (KFT) is currently trading at 21 times average adjusted EPS. This is stock is speculatively priced.
BALANCE SHEET – [add a summary of the balance sheet there]
Book value per share: $19.87
Price to book value ratio: 1.93 (under 1.0 is good) You would be paying a large premium to book value if you buy Kraft at today’s price of $38.29 per share.
Current ratio: 0.85 latest quarter (over 2.0 is good) Where will Kraft get the current assets to cover current liabilities?
Quick ratio: 0.43 latest quarter (over 1.0 is good) The company has very little cash to cover current liabilities.
Debt to equity ratio: 0.63 (lower is better)
Percentage of total assets in plant, property, and equipment: 14.72% (the higher the better) I like to see this number above 50%. Most of Kraft’s assets 66.5% are comprised of intangibles and goodwill. Current assets comprise 17.27%.
CONCLUSION – Kraft is a moderate yielding dividend stock at 3.0%. They have been an excellent dividend grower since 2001. The dividend was $0.26 per year in 2001. Now the dividend is $1.16 per year. That is a 284% increase over 11 years. Unfortunately, the stock is speculatively priced now at 21 times average adjusted earning power. The best time to buy Kraft when it was a value was back in April 2009 when was trading for 11.5 time average adjusted earnings. Kraft’s balance sheet is not strong. The price to book value ratio is quite high and it has very little in the way of current assets and cash compared to current liabilities. I’m always suspicious of the book value when it is mostly supported asset values dominated by intangibles and goodwill. Give Kraft a second look below $21.84 per share. A worldwide double dip recession will drop the price back down to attractive levels that could provide safety of principal and adequate returns.
DISCLOSURE – I don’t own Kraft (KFT).
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