Can You Have A Portfolio Without Some Heinz?
Ryan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
There are certain things in the world that go together. Peanut butter and jelly is one example of this phenomenon. Another is French fries and ketchup. Is a portfolio and Heinz another example of certain things that go together? H.J. Heinz Company (NYSE: HNZ) is engaged in manufacturing and marketing a range of food products throughout the world. Its vast portfolio of products include ketchup, other condiments, sauces, frozen food, soups, beans, pasta meals, infant nutrition, and other food products. Its products are offered throughout the world, and the company is famous for its iconic ketchup. The company employs over 32,000, and is valued at $18 billion on the New York Stock Exchange. Over the past year, Heinz has rallied 7.68%, slightly underperforming the S&P 500 which has rallied 16.73% over the same time period. So can you have a portfolio without some Heinz?
Robust Fundamentals
In 2002, Heinz reported earnings per share of $2.38. In 2012, the average analyst consensus believes the company will derive $2.85 per share from its business operations. This represents a 19.75% increase in earnings over the course of a decade. Based on these statistics, Heinz’s compound annual growth rate (CAGR) is 1.82%. While the company’s growth is not flashy and exciting, it is stable and consistent. Heinz should continue to grow into the future at this low single digit rate. Additionally, Heinz pays out a substantial dividend, which in itself is a reason to purchase the stock. Currently, the company pays out an annual dividend of $2.08, which at the current price, puts the dividend as yielding 3.68%. This is from 2011’s annual dividend of $1.92, and is further expected to expand into the future. By 2015, the street anticipates the dividend reaching $2.32 annually, which at the current price would put the dividend as yielding 4.04%. From this we can see Heinz’s underlying financial strength, annualized single digit growth rate, and massive dividend, which is growing.
The chart below displays Heinz’s sales, operating profit, net income, net margin, operating margin, earnings per share, dividend, and rate of dividend (the percentage of net income that is paid out in the dividend) over the coming years.
Sustainability & Durability
Heinz’s business model is incredibly sustainable. Their core business sells legendary staples: ketchup, mustard, and other condiments. In times of downturn, one of the last things to go is these types of products. Their products are not as essential as electricity, yet are constantly purchased by millions. However, there is a downside to the stable and predictable business model Heinz possesses. Because the markets that Heinz is in are highly saturated, their growth is predictable and slow. The company will constantly perform, but may not grow at an increased rate. All in all, Heinz’s business model is sustainable and predictable, which is highly beneficial in this volatile economic market.
The chart below displays the stableness of the company’s earnings.
Another advantageous trait of the company is the relative amount of the volatility the stock displays on the market. Heinz’s BETA ratio is 0.53, implying that the stock is less volatile, or has smaller price swings, than the overall market. This statistics just adds another level of stability to the company’s stock.
Who Holds A Monopoly On the Industry?
Compared to some of H.J. Heinz’s most prominent competitors, such as: Kraft Foods (NASDAQ: KRFT), McCormick & Company (NYSE: MKC), Unilever (NYSE: UN), and Tyson Foods (NYSE: TSN), Heinz compares relatively favorably.
|
2010-2015 EPS Growth |
Current Dividend Yield |
2010-2015 Dividend Growth |
|
|
HNZ |
51.66% |
3.68% |
38.10% |
|
KFT |
51.72% |
2.78% |
18.10% |
|
MKC |
61.23% |
2.02% |
42.86% |
|
UN |
60.68% |
3.50% |
127.66% |
|
TSN |
251.39% |
1.01% |
0.00% |
|
Price/Earnings Ratio |
Price/Earnings/Growth Ratio |
Net Profit Margin |
|
|
HNZ |
19.67 |
2.57 |
7.93% |
|
KFT |
20.67 |
1.61 |
6.49% |
|
MKC |
21.7 |
2.07 |
10.21% |
|
UN |
19.20 |
1.05 |
9.15% |
|
TSN |
11.91 |
1.38 |
2.32% |
In terms of growth, Tyson is the industry leader, and Heinz is the industry laggard. All companies in the sector pay out sizeable dividends, with Unilever possessing the largest and fastest growing dividend. In the fundamental ratio comparison, Tyson is the industry bargain, while McCormick’s is a little pricy. When growth is taken into account, Unilever is the industry bargain, while Heinz trades at a premium to its peers. In the net profit margin comparison, McCormick’s stands out to the upside, while Tyson stands out to the downside.
The Foolish Bottom Line
Heinz is a globally recognized brand, and has built its empire on ketchup and mustard. The company’s fundamentals are incredibly strong over the long-term. Its annualized single double digit growth rate should extend into the future, but is not flashy. The massive dividend the company possesses will act as a major catalyst for the company. The company is a global staple, and its business model is stable and consistent. The foolish bottom line is that Heinz is an incredible addition to any portfolio, and is a tremendous long-term buy.
makinmoney2424 has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend H.J. Heinz Company and McCormick & Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
