In This Article:
Key Points
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Kraft Heinz stock offers investors an attractive yield of 5.7%.
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The company, however, has been struggling to grow its sales.
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The stock hasn't been this cheap in years -- but is it a buy?
If you come across a falling dividend stock with a high yield, it can be challenging to decide whether it's really a good buy or if it's an investment you want to stay away from. On the one hand, the potential to collect a high yield is alluring. But on the flip side, there's usually a reason investors are bearish on the stock to begin with, which is why it's trading at a reduced valuation.
Kraft Heinz (NASDAQ: KHC) is a stock that probably stirs those kinds of questions among investors. Is it a good dividend stock to hold given its 5.7% yield, or is it merely a value trap that could fall even lower in value? To determine which side Kraft falls on, I'll take a closer look at its financials and its future growth prospects.
What Kraft's numbers say
The big question for Kraft investors is whether the dividend is safe and sustainable. Kraft has generally not experienced challenges in staying out of the red over the years.
And in the trailing 12 months, its net income has totaled $2.7 billion on revenue of $25.4 billion for a decent profit margin of over 10%. Its diluted earnings per share over the trailing 12 months has totaled $2.19, which is higher than the rate of its annualized dividend of $1.60 per share. And that puts its payout ratio at 73% of earnings.
Its free cash flow has also totaled more than $3 billion, which has easily been enough to cover its dividend payments of $1.9 billion over the past four quarters. Both in terms of cash flow and overall profitability, Kraft's dividend does appear to be safe. But that doesn't mean there aren't other issues with the stock.
The company's growth is a big question mark
For investors, it's also important to know that the business is on a good trajectory, and its operations are growing. Unfortunately, when it comes to Kraft, growth has been a bit of a problem. Sales were down more than 6% in the company's most recent quarter, and that's been part of a troubling trend for the business.
For 2025, Kraft's management expects its organic net sales to be down between 1.5% and 3.5% when compared to the previous year. The good news for income investors is that at least this type of slowdown shouldn't drastically impact its earnings. And with a reasonable payout ratio, Kraft's dividend should remain safe even amid a minor decline in its operations this year.