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Why Blue-Chip Dividend Stocks Aren’t as Safe as You ThinkA man pulled a gun on me last week. I was in the Ipanema neighborhood of Rio de Janeiro. Ipanema is one of the wealthiest areas of Rio. You get iconic views of the Brazilian shore line and white sand beaches. I was two blocks from Ipanema Beach when a man on a bike pulled in front of me. At first, I thought he was going to sell me something. Then I saw him starting to pull a gun out of his backpack. Fight or flight kicked in, and I started running. In hindsight, this probably was not a good idea. But thankfully, I made it home safely. Keeping an Eye Out for Warning Signs I knew Rio was dangerous before visiting. All my Brazilian friends told me not to visit because it’s so dangerous. I figured if I stay in iconic Ipanema, I would be safe. But staying in Ipanema turned out to give me a false sense of security. People do the same thing with investing. They convince themselves that their money is safe in a company’s stock because they took the precautions. They did their research. Everyone owns it. But just like staying in iconic Ipanema turned out to give me a false sense of security, buying iconic “tried-and-true” stocks can yield the same result. Take a look at Kraft Heinz. The iconic brand lost 30% of its value in one day. That’s despite having one of the world’s most recognizable brands, a seemingly stable business, and the backing of Warren Buffett. Kraft Heinz had many issues. But one of the reasons the stock tanked was because management cut the company’s dividend . And that’s a death sentence for any investment. Bigger Can Be Better (If You Know Where to Look) High dividend-paying stocks like Kraft Heinz (KHC) can often leave investors with regret. And that makes sense. Many companies must pay high dividends to compensate investors for the risk of owning the company’s stock. Some of these companies borrow money and use the debt to pay their dividend. That’s exactly what Kraft Heinz was doing. And this strategy often ends up being a disaster for investors. Lucky for you, I’ve spent my entire career looking for safe stocks that pay high dividends. I developed a tool that helps gauge the safety of a company’s dividend. I call it the Dividend Sustainability Index (DSI) . How to Select the Right Dividend-Paying Stock You must look at three key things when evaluating dividends. The most important is the payout ratio . The payout ratio is the percentage of net income a firm pays to its shareholders as dividends. The lower the payout ratio, the safer the dividend payment. The second is the debt-to-equity ratio . The more debt a company has, the harder it gets to run a business. This includes—you guessed it—paying the dividend. The third is free cash flow. This is the amount of cash left over after a company pays its expenses. If any of these measures is flashing red, you know the dividend is in trouble. A low DSI score tells me that the odds are high that a company will be forced to cut its dividend. And that’s bad news for shareholders. A Dividend Cut Can Wipe Out Your Profits Kraft Heinz wasn’t the only iconic brand to tank on a dividend cut as of late. General Electric (GE) surprised investors and slashed its dividend 50% in November 2017. GE shares were punished on the news, getting chopped over 10%. One year and a second dividend cut later, shares have been smashed 57% . The Dividend Sustainability Index (DSI) will keep you out of stocks like Kraft Heinz and GE. By using methods like the DSI, you can have real security with your income investments.
NASDAQ:KHC
by RRoss
Buffett Made a Mistake That Cost Him $4.3 Billion This YearEven the best investors have bad days. Warren Buffett is no exception. In February, he watched one of his biggest acquisitions quickly sour. I’m talking about Kraft Heinz, an American food giant that makes everything from ketchup to Oscar Mayer hot dogs to Kool-Aid. The stock plunged 30% in one day after it announced a 36% dividend cut and never recovered. This caught a lot of investors by surprise. That’s because Kraft Heinz fit Buffett’s signature strategy, known as value investing, to a T. Buffett has used this strategy to make billions of dollars. So people expected Kraft Heinz to be safe. But the writing was on the wall well before February. Here, I’ll explain why—and how to avoid stocks with similar problems. But first, let’s look at how Buffett got into this jam… There’s Always Money for a Coke Value investors like Buffett make money buying stocks that are trading for less than their intrinsic value. Imagine, for example, that a stock is trading for $20 per share. But your research says it’s worth $25 per share. If you’re correct, and the share price rises, you make a profit. That’s how value investing works in a nutshell. This strategy is one of the reasons Buffett acquired an 27% stake in Kraft Heinz in 2015. It also matched his preference for easy-to-understand companies like Coca-Cola and Duracell. In theory, people buy their products no matter what’s happening in the economy. There’s always money for a Coke, a pack of batteries, or a hot dog, even when you’re broke. No One Drinks Kool-Aid Anymore On the surface, Kraft Heinz looked like a stable company with a safe dividend. Finding such companies is my forte, so check out my latest special report where I reveal my favorite dividend stocks for 2019. But if you looked deeper, you’d see the company is actually dealing with many issues. The biggest issue is that Kraft Heinz doesn’t keep up with changing consumer trends. People don’t want prepackaged foods like Oscar Mayer hot dogs anymore. Instead, they want simpler, healthier foods with fewer processed ingredients. This has weakened demand for the company’s core products. (When was the last time you saw someone drinking Kool-Aid?) In fact, the company’s sales flatlined from 2015 to 2018. Earnings rose slightly, but this came from cutting costs, not growing sales. Still, Kraft Heinz kept raising its dividend. This was a major red flag. How to Spot an At-Risk Dividend When a company’s dividend rises faster than its earnings, it increases a closely watched indicator called the payout ratio. The payout ratio is the percentage of net income a company pays to shareholders as dividends. The lower the payout ratio, the safer the dividend payment. In Kraft Heinz’s case, the payout ratio has been rising for three years. Over that period, it has averaged 94%. That means the company immediately paid out almost every dollar it made. Again, this is a major red flag. If a company pays out all of its profits in dividends, there’s nothing left over to reinvest in the business. With Kraft Heinz, sales were already struggling. Add in the rising payout ratio, and more investors should have been wary. Instead, they were hypnotized by Buffett’s blessing and the company’s (former) 5.5% dividend yield. Then the inevitable payday came. February’s big dividend cut sent shares down 30% in one day. This cost Buffett’s Berkshire Hathaway a paper loss of over $4.3 billion.
NASDAQ:KHC
by RRoss
1
Kraft Heinz co. Investment opportunity or bad business Is Kraft Heinz co a investment of a lifetime or a death sentence? Warren Buffett bought 26.70 percent of the company at 72 dollars a share. He openly stated he was wrong about Kraft in a couple different ways. Kraft Heinz co is 30.1 billion in dept and only worth 39.1 billion they make around 6 billion a year and currently coming out with a new line of kraft baby food. How much revenue is that going to bring? I don't think kraft will go out of business however I do think it will be several years to make a turn around. That is my prediction what's your thoughts please share you knowledge on the subject.
NASDAQ:KHCLong
by MatthewV
Kraft Huge Upside Move ComingCrypto Crusader here with another blue chip analysis This one is fairly self explanatory, We can see that KHC has taken a huge beating over the previous two years. From all time highs (ATH) KHC has fallen around 65% placing it in an extremely oversold situation. To preface the remainder of this technical analysis, Berkshire Hathaway (Warren Buffet) purchased nearly 30% of the company around $72.5, just to put in perspective how large this downside leg truly is. $33~ is a bargain if I have ever seen one. The channels on the actual candles look amazing, along with the MACD and RSI backing up that price action in a positive manner. MACD is moving towards the positive side, and creating a green tick compared to the perpetual red ticks that have been occurring for a while now. The recent convergence of the MACD is a great indicator in itself, but mirrored with other action from RSI creates a stronger argument towards the imminent move of an upward channel. RSI levels created an all time low around March of 2018, however, at the same time higher lows have been put into place with the massive selloff around Feb of 2019. This divergence in RSI levels along with the previous action on MACD and the overall sentiment of the stock is creating a massive storm. All of these factors mixed with that fact that they replaced their CEO with the "Wizard of Marketing" are incredible catalysts to prepare KHC for a massive move. Sell target $40 +- 3% Happy trading, Crypto Crusader
NASDAQ:KHCLong
by CryptoCrusader
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