Seeking Alpha
Profile| Send Message| ()  

H. J. Heinz Company (HNZ) is an $11.6 Billion (FY 2012 revenue) manufacturer and marketer of food products for consumers and institutional customers in North America, Europe, and Asia Pacific and internationally. The company is best known for its namesake brand, Heinz Ketchup, which has a 60% market share in the United States, 70% share in Canada and 78% share in the United Kingdom. Other Heinz products include sauces, salad dressings, frozen foods, pasta meals and infant food. The company's top 15 brands, including the flagship Heinz branded products, make up 70% of sales revenue. Other well known products include Ore-Ida Frozen Foods, Weight Watchers, T.G.I. Friday, Heinz Baby Food, Heinz branded relish, mustard, mayonnaise, vinegar, soups and sauces.

The company was founded in 1869 and is based in Pittsburgh Pennsylvania.

Record sales revenue derived in part from new product roll-outs, recent acquisitions, and natural brand extensions, lead Heinz to a 52 week high of $58.56/share on October 18, 2012. On November 7, 2012, the stock closed near that level at $57.66. Still there is room for upside in that the *stock is up 10.4% over 52 weeks while the S&P 500 is up 16.2%. The Heinz return on equity is an impressive 32.9%.

Heritage: The First Name in Ketchup

Throughout the world Heinz is synonymous with ketchup. Heinz sells 650 million bottles of ketchup every year and approximately 2 single serve packet of ketchup for every man, woman and child on the planet. For millions of families the world over, 'if it isn't Heinz it isn't ketchup'

International Growth

Ten years ago less than 50% of revenue was generated outside of the US. Today, two thirds of sales revenue comes from outside the US, following significant investments by the company in emerging markets of India, China and Indonesia. Geographic diversification, as Heinz has moved into markets across the globe, clearly helped the company increase sales revenue over 9% in 2012. The presence of 25 global websites really tells the story of an expanding Heinz footprint.

The infant/nutrition division has grown to contribute $1.2 billion in annual revenue because of gains in China, India and Latin America. More than 40% of Heinz Baby Food is sold in Emerging Markets.

Growing Annual Dividend

Currently Heinz is paying an annual dividend of $2.06 and yielding an attractive 3.5%

The company has been paying dividends continuously since 1911. More impressively, for 7 years Heinz has consistently increased its annual dividend, right through the financial crisis, with a 5-year average increase of 6.40%. The Heinz payout ratio is 65%.

For those who might be contemplating starting a dividend reinvestment plan, Heinz has an excellent DRIP program. An investor can get started with a $250 direct purchase minimum with subsequent investments of as little as $50 and no requirement as to the frequency of further investment.

Restaurant Presence

Restaurant sales contribute 15% of sales. HNZ has a massive foothold in the restaurant business with Heinz branded condiment packets in every McDonalds Restaurant (MCD) and ketchup and mustard bottles on the dining table at Red Robin Restaurants (RRBG).

Current Risks

There is reason for concern that federal tax on income from dividends will change going forward…but there is also real concern that markets could turn bearish in which case one wants to hold stocks that weathered the last correction well. Highly regarded dividend paying stocks like Heinz tend to hold up against negative financial storms and short term volatility.

As consumers have become more health conscious, they have shown a growing demand for healthier alternatives across all food categories. Responding to this changing consumer sentiment Heinz introduced a certified organic ketchup "Heinz Organic Ketchup" and "Heinz Light" which are low sugar ketchups, as well as other healthy alternatives.

Consumers are also cost conscious. Heinz has adjusted package sizes to meet price points acceptable to some strapped consumers.

Conclusions:

After 136 years in business, Heinz is proving that Heinz Ketchup is NOT a mature business. Through innovation, packaging, expanded distribution and new sales channels Heinz Ketchup sales increased 9.7% in fiscal 2012. Who would have thought that was possible?

Heinz may be a suitable investment for those seeking an income stream through dividend paying stocks. I have included this ticker in my retirement portfolio and have a high level of confidence in the company because of a dominate market share position in mature markets (more than 60% share) and a growing presence in emerging markets. In addition, the company has shown itself to be nimble and quick to respond to changing consumer wants and needs with the addition of an organic product line and smaller packaging targeted at customers needing to stretch grocery shopping dollars.

Source: Heinz - A Dominant Market Share With A 3.5% Dividend Yield