High Yielding Kraft Is A Hold Right Now At A Yield Of 3.94%

| About: The Kraft (KHC)

The last time I wrote about Kraft Foods Group, Inc. (KRFT) I stated that I would be buying a big lot of shares at that time. Since the last article it has lost 0.43% versus the 1.83% gain the S&P 500 (NYSEARCA:SPY) posted. I admit I was wrong on that call. Kraft operates food and beverage businesses in North America including convenient meals, refreshment beverages and coffee, cheese and other grocery products.

On October 30, 2013, the company reported third quarter earnings of $0.70 per share, which beat the consensus of analysts' estimates by a penny. In the past year the company's stock is up 17.52% excluding dividends (up 19.41% including dividends) and is losing to the S&P 500, which has gained 25.33% in the same time frame. With all this in mind, I'd like to take a moment to evaluate the stock on a fundamental, financial, and technical basis to see if it's worth buying more shares of the company right now for the consumer goods sector of my dividend portfolio.

Fundamentals

The company currently trades at a trailing 12-month P/E ratio of 16.98, which is fairly priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 16.66 is currently fairly priced for the future in terms of the right here, right now. The 1-year PEG ratio (1.18), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is fairly priced based on a 1-year EPS growth rate of 14.44%. The company has great near-term future earnings growth potential with a projected EPS growth rate of 14.44%. Below is a comparison table of the fundamentals metrics for the company for when I wrote all articles pertaining to the company.

Article Date

Price ($)

TTM P/E

Fwd P/E

EPS Next YR ($)

My Target Price ($)

PEG

EPS next YR (%)

05Oct13

53.22

17.17

16.56

3.21

48

1.15

14.96

05Nov13

54.11

17.23

16.98

3.19

47

1.31

13.17

08Dec13

53.55

17.05

16.74

3.20

48

1.18

14.42

09Jan14

53.26

16.98

16.66

3.20

48

1.18

14.44

Click to enlarge

Financials

On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. The company pays a dividend of 3.94% with a payout ratio of 67% of trailing 12-month earnings while sporting return on assets, equity and investment values of 8.1%, 45.5% and 13.7%, respectively, which are all respectable values. The really high return on equity value (45.5%, tops in the Major Diversified Foods industry) is an important financial metric for purposes of comparing the profitability, which is generated with the money shareholders have invested in the company to that of other companies in the same industry (for comparison purposes, Lancaster Colony Corporation (NASDAQ:LANC) sports a ROE of 27.2%, and WhiteWave Foods (NYSE:WWAV) sports a ROE of 12.7%). Because I believe the market may get a bit choppy here and would like a safety play, I believe the 3.94% yield of this company is good enough for me to take shelter in for the time being. Below is a comparison table of the financial metrics for the company for when I wrote all articles pertaining to the company.

Article Date

Yield (%)

Payout TTM (%)

ROA (%)

ROE (%)

ROI (%)

05Oct13

3.76

65

8.0

38.7

13.7

05Nov13

3.88

67

8.0

38.7

13.7

08Dec13

3.92

67

8.1

45.5

13.7

09Jan14

3.94

67

8.1

45.5

13.7

Click to enlarge

Technicals

Click to enlarge

Looking first at the relative strength index chart [RSI] at the top, I see the stock waffling around in middle-ground territory with a value of 49.9 and actually has been doing so since the last time I wrote about it. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is just about to cross below the red line with the divergence bars decreasing in height, indicating bearish momentum. As for the stock price itself ($53.32), I'm looking at $54.93 to act as resistance and the 50-day simple moving average (currently at $53.01) to act as support for a risk/reward ratio which plays out to be -0.58% to 3.01%.

Recent News

  1. Deutsche Bank says Kraft is "compelling". The bank upgraded the stock to a buy rating from neutral and raising the price target to $59 stating that the food company is trading at a discount to its peers.
  2. There appears to be a Velveeta shortage. There appears to be strong demand for the product on the east coast right now and a shortage of stock. Kraft acknowledges there are supply chain issues. I hope they can rectify the issue before the Super Bowl because I'd love to have some cheese dip for the party!
  3. The company announced a $3 billion buyback program. The program has no expiration date.

Conclusion

The market has moved considerably higher in the past year and if you want a safety play then I believe Kraft is one stock to be in during the first quarter, especially since earnings season is encroaching on us. Fundamentally the company is fairly priced based on future earnings and on future growth potential. Financially it pays a high dividend yield, but I believe it may only be increased slightly in the future. Technically I see the stock moving sideways based on the RSI and MACD charts. I'm going to avoid pulling the trigger here and wait to see how they report.

Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!

Disclosure: I am long KRFT, SPY, . I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.