The board of directors at Kraft Foods Group, Inc. (KRFT) recently increased its quarterly dividend by 5% – its second dividend hike after becoming an independent company. The consumer food giant will pay a quarterly dividend of 55 cents per common share, up from 52.5 cents paid previously.
The quarterly dividend is equivalent to an annual dividend of $2.20 per share, up from $2.10 paid previously. The new dividend will yield approximately 4% annually.
The increased dividend is payable on Oct 31, 2014 to shareholders of record as of Oct 17.
Last year too, Kraft had raised its dividend by 5% for the first time since it separated from Mondelez International, Inc. (MDLZ). In order to improve shareholder value, in Dec 2013, the board of directors authorized a $3 billion share buyback program – also the first since the split from Mondelez in Oct 2012.
In the past, Kraft concentrated largely on improving revenues and margins, which led to inconsistent cash returns to shareholders. However, the new Kraft aims to balance growth and reinvestments. Kraft now focuses on cash generation and delivers consistent shareholder return through strong financial discipline. The company aims to generate significant cash and is targeting to “put dollars in shareholders' pockets, not margins”.
Free cash flow is expected to be at least 85% of the net income in the long term, which will be used mainly to pay steady, incremental dividends. The company targets consistent dividend growth in the mid single-digit range.
In the first half of 2014, Kraft generated free cash flow of $454 million, 13.8% higher than last year. In the first half, the company paid $628 million as dividend and repurchased approximately $238 million shares under its $3 billion share repurchase program.
Other Stocks to Consider
Kraft currently carries a Zacks Rank #3 (Hold). Better-ranked food stocks include The Hain Celestial Group, Inc. (HAIN) and Pinnacle Foods Inc.(PF).While The Hain Celestial sports a Zacks Rank #1 (Strong Buy), Pinnacle Foods has a Zacks Rank #2 (Buy).
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