Kellogg Company (K) has been making products that American consumers love since 1906. The company is largely known for its cereal brands: Rice Krispies, Frosted Flakes, Corn Flakes, Special K, and Apple Jacks. Kellogg makes just about any food product that you could think of including cookies, crackers, beverages toaster pastries, cereal bars, fruit snacks, and frozen waffles. The company also owns the Keebler, Cheez-It, Murray, Austin, and Famous Amos brands.

Kellogg’s competes in the processed and packaged goods industry. This industry is dominated by a few big name market players. The company’s three largest competitors are General Mills, Kraft, and ConAgra Foods. There are several other generic brand manufacturers but their market share is not close to the larger industry bell cows. Kellogg’s is second only to General Mills in the industry in terms of revenue, net income, market cap, and number of employees.

Kellogg’s financial numbers are solid. The company generated $12.4 billion dollars in sales this year. That’s actually a 1.4% drop from the $12.5 billion dollar mark in 2009. Earnings before interest, taxes, and depreciation were $2.5 billion dollars. The company has $1.23 billion dollars in net income.

Gross margins are outstanding at 43% which outpaces the industry average of 32%. Operating margins were double the industry average of 8%, coming in at 17%. The only negative for the year was the negative revenue growth figure. Quarterly revenue growth dipped 3% last quarter due to increasing competition in the industry. This does bear watching to see if the trend continues going into 2011.

The company had 4% earnings growth for the current year and is forecasting 5% growth for next year. Earnings grew at a 7.5% rate over the past five years and should grow at 8.5% over the next five years. Those are decent numbers for a mature company with a $18.8 billion dollar market cap in a slow growth industry.

The stock trades at 15.7 times this year’s earnings and 14.7 times next year’s earnings estimate. The company trades at 1.83 times earnings growth and 1.5 times book value. All of these numbers are below the industry average. Kellogg’s stock is particularly attractive because of its steady dividend.

Kellogg’s stock pays a dividend of $1.62 which equates to a dividend yield of 3.20%. This yield is slightly higher than the historical yield of 2.60% and the company’s payout ratio of 47% is incredibly low. This demonstrates that Kellogg’s has significant room for a dividend increase.

Kellogg’s has been a solid dividend play for years. Despite the company’s earnings hiccup, Kellogg’s increased its dividend 8% a few months ago. There is no need to ever worry about Kellogg’s dividend. The company has paid its dividend for 342 quarters. Now you can see why Kellogg’s stock is a staple in the portfolios of many institutional investors and fixed income investors.

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2 Responses to “Kellogg’s Consistent Dividend – K”

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