The other night I settled in to watch a little college football, and while I wasn’t expecting an overly entertaining game, the battle between TCU and Cal proved to be exciting and the game was decided in overtime.
You might be asking how that is relevant to my latest purchase.
Whether it is a coincidence or not, the bowl game that TCU and Cal were playing in happened to be the Cheez-It Bowl.
Or as one of the $500+ million dollar brands in the Kellogg portfolio tweeted, the Cheez-I(N)t Bowl due to the number of interceptions that were made by each team.
With the market volatility we have been experiencing, as well as the year nearing to a close, I have been focused on adding to some of my underweight positions to start the new year strong and I’ve had my eye on Kellogg.
Brief Background on Kellogg Company
Kellogg Company is the world’s leading producer of cereal and toaster pastries and the second largest manufacturer of cookies and crackers. Their portfolio also includes products such as savory snacks, fruit-flavored snacks, and frozen waffles and vegetables.
I would be willing to bet that many reading this post have at least one Kellogg product in their kitchen with many of their core brands being household names, including: Pringles, Special K, the aforementioned Cheez-It, Keebler, Eggo, Raisin Bran, and Froot Loops, to name a few.
Kellogg primarily sells their products to large retailers, including a number of companies that are well-known in the DGI community such as Target, Walmart, and Kroger.
It is interesting to note that in 2017, Kellogg announced a major change to their distribution strategy. In the past, they operated a direct-to-store model, which means they had the operational cost of shipping product to each retailer. They are now moving towards warehouse deliveries where the retailer owns the responsibility–and cost–of transporting the product to their stores. Kellogg’s management expects this change to result in a cost savings of approximately $650 million by 2019.
Kellogg’s has a stable of strong brands and has demonstrated an ability to shift their business model to match consumer tastes, which is good because they are working on this now as consumers are moving more towards healthier foods.
Despite taking on debt to acquire a number of companies in recent years, Kellogg’s maintains a BBB credit rating from Standard & Poor’s and has benefited from relatively low borrowing costs.
However, that debt could weigh on their ability to grow and increase the dividend.
In addition, while they are attempting to shift to healthier foods and snacks, their core business does remain the ready-to-eat cereal and growth forecasts in that space are quite conservative in the coming years.
Kellogg Company was founded in 1906, and is headquartered in Battle Creek, Michigan.
Kellogg By the Numbers
Kellogg was on my dividend watch list in October and November, but I was not able to add to my position. With the recent decline in price, along with the rest of the market, I was able to secure a price and dividend yield that made me happy to add to my position.
Speaking of the dividend, Kellogg has paid an uninterrupted dividend since 1925 and has a 15-year run of consecutive dividend raises.
Checking in with Simply Safe Dividends, we see that Kellogg currently has a dividend safety score of 76 and this puts it safely above the threshold that I like to see.
Using the SSD dividend safety score as a reference, I like the majority of my holdings to be in their “Safe” to “Very Safe” range as companies with those ratings have a very strong track record of avoiding a dividend cut.
The next step was to examine the 5-year average dividend yield and P/E ratio.
Based on my current purchase, Kellogg is trading approximately 33% above their 5-year average dividend yield while their forward P/E ratio of 13.5 is considerably lower than their average P/E ratio of 17.1 as well as the sector P/E average.
Both of these factors indicate that Kellogg may be undervalued right now.
Taking that information and cross-referencing with FAST Graphs, as shown above, we see that Kellogg has dropped down below their normalized P/E ratio. This also signals that they may be undervalued.
Lastly, I took a look at their dividend growth and while it has not been stellar, they have been quite consistent with raises in the neighborhood of 4.0% for quite a few years.
Adding to Kellogg Position
When I originally added Kellogg to my dividend watch list in October, I mentioned that I was looking to start nibbling if the price dropped down around $65.00/share.
Fortunately, by focusing my purchases elsewhere over the last couple of months, I was now able to secure a much better price and doubled the small position that I already had.
Here is a recap of my purchase:
I purchased 15 shares @ $55.95/share that will add an additional $33.60 in projected annual dividend income.
Overall, this increases my position in Kellogg to 30.377 shares.
This purchase still leaves my position in Kellogg as underweight, however it has moved it up from the low-man on the totem pole. If the price remains in the low to mid-50’s I may look to add a little more as well.
Whether this turns out to be my last purchase of 2018 or not, I can say that I am pleased that I was able to add to a long-standing company in the Consumer Staples sector and boost the portfolio weighting slightly.
Given that I was able to add these shares at an approximate 14% discount to where I was originally looking to take a nibble makes it just that much sweeter. There are still plenty of buying opportunities available and I will most definitely be looking to make use of the last two market days of the year.
The additional $33.60 in projected annual dividend income has now boosted me up to…
Wait, rather than tell you now, you will have to tune in next week for a post recapping my 2018 goal progress!
While I know Kellogg has not really been a popular name across the DGI community, I’d love to hear what you think about this purchase.
Charts and graphs courtesy of FAST Graphs and Simply Safe Dividends.
18 thoughts on “Recent Buy :: Kellogg Company”
Always great adding to existing positions at a even lower cost basis.
I used to eat raisin bran all the time but then switched to a walmart or loblaws brand because it was a little cheaper and had more raisins. lol.
Nice history to the company though and great brand.
keep stacking those divs!
As a kid, I was a huge Froot Loops and Frosted Flakes fan. I’ll have an occasional box of Raisin Bran, but my go-to cereal lately has been Life (shh, don’t tell Kellogg or General Mills as they might not be happy with me).
Divvy D –
No stopping you, excellent purchase, Bravo!
Thanks Lanny–watching for some more red today or on Monday, as there is still some more capital waiting to be deployed!
I think it’s a great buy. I want me some Kellogs as well, but first I need to check on my diversification. And with the recent volatility there are so many choices out there now.
Thanks Mr. R, and you’re absolutely right that there are numerous choices out there right now and it makes sense to be sure that you’re maintaining your desired diversification across sectors.
Nice add, I might add some Kellogg if we have a bit more US cash. With the recent market nosedive, it is getting a bit easier to find some bargains. 🙂
Glad to hear you might be looking at Kellogg as well if you have some USD. There are plenty of bargains around, and I am being patient to see if MMM comes back my way as I missed it at the price I would like.
While I don’t actually own Kellogg, I do believe that any company with the rich corporate history of Kellogg that is focused on the future as Kellogg is, will do well over time at current prices. I just recently added to an underweight position in my portfolio and a position that is about where I’d like it to be in terms of my weighting. I’ll have an article detailing these recent purchases, but it will be brief due to there already being rationale for my purchase decisions from as recently as a week ago and a couple months ago in a couple of my previous posts.
Thanks Kody, and I hope they can continue to transition as the market changes. They did quite well when the focus shifted more towards snack foods. With the more recent shift towards healthier foods, they seem to have been struggling a little and/or paying a premium to acquire health food companies (such as RxBar).
Look forward to checking out your latest purchases!
Although I own a number of the big food stocks, Kellogg is not one of them. Packaged food stocks have really taken a beating this year and represent a good opportunity. I think these companies will figure it out over time. In addition, trends in food do not last forever. Tom
You’re right that it has been a rough year for the packaged food companies, although as noted that in turn has presented some buying opportunities. I’ve recently added a little to GIS as well but am somewhat cautious with both as they do have some headwinds to manage. Thanks for the feedback Tom.
nice investment! Kellogg was on my watch list years ago but somehow I never pulled the trigger. Nevertheless I should again have a deeper look into it. The current price level seems to be very attractive.
Thanks DI, they certainly have their share of risks but over the years they have demonstrated an ability to adapt–and that has me encouraged, although not blinded, for how they may weather the storm. All the best on your deeper dive into the stock.
K has been an outstanding consumer staple stock over the years, but recent growth trends are a concern. If they can manage the food trends transition as you noted, then the company should fair well. I’d like to see a stronger dividend growth rate, too, but that will most likely follow earnings growth.
It was great that you were able to snatch up the new shares at a price well below your initial target. Your patience was rewarded. Keep up the outstanding work as you wrap up an impressive 2018 with regard to building out your dividend portfolio.
Happy New Year to you!
Happy New Year to you as well ED!
I will continue to patiently watch them and see how they manage some of those risks, as they are still in the bottom third of my portfolio in terms of weighting. I have plans to add more, but I am not in a rush.
Thanks for the kind words and your support since I entered the DGI community!
Kellogg looks like a great purchase and their brand portfolio is outstanding! It would be a great addition to my portfolio as it needs more consumer defensive stocks, but after recent volatility there are so many choices available.
Thanks DD, and you’re right that there are a lot of good choices out there right now. Unfortunately we cannot buy them all, but wouldn’t that be nice!