Kellogg: Breakfast and Dividends

11/05/2014 7:00 am EST


John Dobosz

Editor, Forbes Premium Income Report and Forbes Dividend Investor

Blue chip dividend-payers in the consumer staples sector tend to show their stripes when the market turns choppy, observes John Dobosz, editor of Forbes Dividend Investor.

Kellogg (K) is a reliable dividend-payer that’s been in business for more than a century and offers a discounted valuation compared to historical averages.

Founded in 1906 and headquartered in Battle Creek, Michigan, Kellogg K makes and markets breakfast cereals and snack foods in the United States and overseas, primarily in the United Kingdom.

The next quarterly earnings report is due out on October 30. Analysts expect revenue for 2014 to climb less than 1% to $14.8 billion. Earnings should rise 3.7% to $3.91 per share.

Dividends have been paid regularly since 1985 and regularly increased. The last dividend of $0.49, paid in August, was up 6.5% from the prior quarter.

The next one is coming in late November, so if you buy now you’ll pick it up. The yield is nearly 3.2% and well covered by earnings and cash flow.

Over the past five years, Kellogg has traded for an average enterprise value to EBITDA ratio of 11.6. That’s 36% higher than the current multiple of 8.6. 

Its price to book value ratio of 5.9 is also well below the five-year average of 8.2.
These valuation discounts make now a good time to get into this consistent source of dividend income.

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