Many of you may have seen the headlines about Buffett buying out Heinz (HNZ). That is party true. He's putting up half the money with 3G Capital, A Brazilian firm, to purchase HNZ. Buffett is getting half the equity and some preferred offerings.
Anyways, after this announcement, the price of HNZ shot up 20% to $72.50. So I went ahead and sold the stock. Since my purchases were all longer than a year ago, the profit will be treated as long-term capital gains.
This trade happened last Thursday. I was deciding between purchasing KO or GIS. In the end I bought GIS. I used the proceeds from the HNZ sell and purchased 65 shares of General Mills (GIS) at $44.02/share.
The dividend income was a wash since GIS was yielding right at 3% which is what HNZ was yielding after the price increase.
I've liked GIS for a while but was planning to ramp up my investment in HNZ before buying any since they are in the same sectors. Now that I won't own any more HNZ I decided it was a good move to put the money into another Consumer/Food Processing company.
GIS has increased their dividend for 9 straight years and have a 5-year CAGR of 10.8%. GIS also has a TTM P/E of 16.45, 3% yield, payout ratio of 46%, ROI of 10.74%, Gross Margin of 37.23%, and TTM EPS growth of 15.3%.
What do you think of this move?
Companies like General Mills' kraft' Heinz are really excellent companies. The one major negative factor affecting these stocks is the consumer trend away from name brands to house brands or commonly refered to as private label. More and more major grocery store chains are increasing carrying and creating their own private label brands which used to be referred to as generic brands. I recently purchased some steak sause at Aldi a major off price grocery store chain it tastes exactly the same as A 1 steak sauce. The in store brands are often as good as name brands and cheaper.
ReplyDeleteHi Quality Stocks,
DeleteI agree there may be some of that going on and there always will be. This is where advertising and brand loyalty come into play. With growing populations and plenty of room from international growth, I'm not too worried about these companies inability to grow their earnings. The only question is how quickly can they grow their earnings. I think GIS will have faster growth than a company like KRFT but that's one reason KRFT has a higher yield currently.
Thanks for commenting!
AAI,
ReplyDeleteNice buy here. It's had a bit uptick since the HNZ deal was approved, however.
GIS was going to be one of my buys this month, but the big swing prevented me from buying in. I think it's a great company and was surprised a bit to see that Matt @ Dividend Monk had a generally "so-so" analysis on it. I think the product lineup is fantastic and the international exposure is great.
I'm really upset it has had such a big swing. I was taking my time because the beta is almost as low as you can get so I didn't expect any big price action. Thanks a lot 3G and Buffett!
At any rate, great company. I may still buy this month or next if it doesn't come down. It's currently my #1 idea after my recent buying spree involving JNJ, KO, AFL and the bank I bought on Thursday. BBL is also high on my list, but with a high beta I figured it would swing wildly and allow me a good price. Not so much.
Best wishes!
Hey DM,
DeleteI agree that GIS isn't a steal currently. Especially after the recent price jump after the Buffett deal. I would have much rather bought at a cheaper price weeks ago. I will have to check out Dividend Monk's analysis.
The beta is low and it's a solid company for a long-term holding. I made a lateral move. I completed replaced dividends lost but I believe I bought a company that can grow their dividends a little faster. We will see!
KO is high on my buy list, I plan to pick up a small starter position on Tuesday. I want JNJ to drop more in price, that may never happen though. I also like AFL but I have a good chunk of money in TWGP so I'll see how that pans out this year. I haven't looked into BBL much, thanks for pointing it out.
Thanks for dropping by!
Moving from HNZ to GIS was a pretty good transition IMHO. GIS will probably be a stable dividend growth stock for many years to come.
ReplyDeleteMy FIJ,
DeleteI figured GIS would be a nice replacement since they are in the same sector and have currently the same yields. They have a ton of strong brands!
Take care!
I like this move. GIS is one of the most stable stocks I can think of. The beta is practically zero which I love. It's going to do what it's going to do regardless of the stock market rollercoaster ride. It's a nice anchor in downswings, no doubt. I see a lot of innovation with this company. Constant stream of new products, flavors, packaging, etc. GIS isn't going to stand still and let the world pass them by.
ReplyDeleteMy only concern is that it has increased in price recently as Mantra pointed out. Normally GIS yields less than HNZ so it is a good trade imo.
Hey CI,
DeleteI do like the current low beta. My total weighted beta of my portfolio is about .75. I'd like to keep it as low as possible. I also like their product lineup. As you mention, they have a constant stream of new products and are always innovating.
I wasn't thrilled with the price but I was able to get the same yield as what HNZ was yielding after the buyout announcement so I think this will be a good move long-term.
Thanks for stopping by!
General mills is a good company. The only major problem that I see with these brand name foods stocks is the number of major retailers that are going over to more of their own brands rather than just carry name brands. Consumers are less willing to pay more or a name brand if its not any better than the house brand.
ReplyDelete