Kraft Spin-Off Creates Cash Cow

The Kraft Foods Inc. (KFT) spin-off will finalize on October 1. The two separate entities will trade independently on October 2. Investors can find a compelling dividend income, international growth exposure and potential capital gains due to the spin-off. Kraft remains a blue chip food equity. I believe the spinoff will generate share appreciation and provide an above average dividend yield. Kraft Foods Group will, as a mature business, pay a steady cash cow dividend with annual increases.

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spin-off Terms

The current Kraft Foods will officially have two separate stocks on October 2. For every 300 shares of Kraft Foods, investors will receive 100 shares of Kraft Foods Group (KRFT) and 300 shares of Mondelez International (NASDAQ:MDLZ).

Kraft Foods Group

I believe Kraft Foods Group will remain a North American grocery business with a cash cow mentality. Investors will receive an above average dividend. Kraft is the second largest food company in the world. The Kraft Foods Group "when issued" shares will begin trading in the near future. Kraft is projected to pay a dividend of $2.00 per year.

Kraft Foods makes and sells packaged food products, including biscuits, confectionery, beverages, cheese, convenient meals and various packaged grocery products.

The current Kraft is expected to earn $2.50 in 2012 and $2.75 in 2013. These net earnings per share projections amount to a 16x price to earnings in 2012 and 14.54x in 2013.

Mondelez International

Mondelez International is expected to earn $1.50 to $1.55 per year in 2013. This division should grow faster than Kraft Foods Group.

Mondelez International is the spin-off which will include the international snacks division. This unit is growing faster than the cash cow Kraft Foods in North America. Mondelez International has growth opportunities in China, Indian, and the vast overseas market. The international brand includes Cadbury Dairy Milk chocolates, Halls lozenges, and Trident chewing gum.

When Issued Shares

The two companies will begin trading as "when issued." This should begin by September 20. The "KFT" symbol will retire after the market's close on October 1.


Spin-offs can unlock shareholder value. This is not a guarantee or a promise. I am confident Kraft Foods Group will offer a compelling dividend. The dividend is expected to increase through share repurchases and free cash flow allocations. This spin-off will clearly succeed in unlocking substantial shareholder value. The product brand names are globally recognized and the management team is set to ensure revenues and growth are on the radar screen.

Disclosure: I am long KF. 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.

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