Friday, February 22, 2019

KHC slashes the dividend 36%

In disappointing news KHC cut the dividend severely down to 0.40 per share per quarter. The stock price fell 28% in the open. I have sold my KHC, all of it. I have added new capital and invested in other companies to boost the dividend back. The position is less than 0.50% of my portfolio and I will record the dividend loss on my year over year chart to show the poor performance.

KHC is still a profitable business but the management at 3G have largely disappointed me. KHC will still remain for many decades in my view and I believe it can crawl back. My problem is mainly with 3G management and this is why I sold. The industry has large secular head winds and 3G's aggressive take on debt and use of acquisitions + debt + laying off people to expand the company is not working well especially when the brands they buy are in secular decline. The company is relying on a lot of cost cutting and firing of staff, which will ultimately hurt innovation and growth. 3G has also underperformed my indirect position in BUD (owned through Altria). They have destroyed a lot of value in my portfolio.

I have lost a lot of money on KHC over the years. I took my losses, will tax loss harvest some of the amount, and use the $2400 in proceeds to buy new stock. 

I infused $7000 of cash into my portfolio. I bought a lot of Boeing and a very few of Altria and WEC (a utility). My boeing position is now $9284.

The lesson learnt here is that not even boring 'stable' food stocks are safe. Dividend cuts also stress the importance of diversification. This dividend cut on my tiny $2000-3000 position in KHC is a non-event. My overall portfolio dividend actually went up as I purchased a lot of new companies this week. However if a dividend cut happens to one of my large positions in the $20K or $30K size then it will hurt, but still not be the end of the world as my portfolio is now sitting around $630K.

Trends change and companies have to keep up (like technology) or die. I am taking a deep look at other types of consumer staples like GIS and drinks like KO/PEP. I think PEP is in a good spot as snacks do not fall under this category and are actually growing with the millenials. It's the whole healthy eating, organic, and fresh food category that is killing old consumer packaged goods companies like Campbell, JM Smucker, GIS, and KHC.

I am also looking closely at traditional safe consumer stocks that are not food related like PG and KMB and CL as their growth has largely stalled. I am worried about off-brand products being competitive and Amazon starting their own essentials lines.


  1. Thanks for the detailed explanation. How to deal with failure - for me it's one of the most interesting parts of being an investor. Also I like your BA purchase very much.

  2. Too bad KHC slashed its dividend. Interesting to see how you handled it. Good luck with all of your purchases!

  3. KHC's dividend cut for me was nit a surprise. I would even expect a second one.
    Lesson to be learned: never invest in corporations with weak cash flow and high debt loads. KHC is still in deep shit.

  4. There are a lot of lessons to be learned with Kraft here. You're right, it shows that brand presence alone can't carry a stock. I will evaluate more this weekend and read articles to see what lessons I need to take. But once again, there was one thing I saw in common with previous cuts....debt. High debt shouldn't necessarily preclude you from an investment in a company. However, it should raise some flags and cause you to perform additional digging to make sure you are comfortable with the investment.


  5. The importance of diversification indeed. I'm sticking with my KHC for now. It is just under 1% of my overall portfolio and like you the cut sucks but is a non-event in the big scheme of things. Between other dividend raises and fresh capital being added the passive income stream should continue to grow. I never want any one position(s) of mine to be my main passive income source. I strive to spread my bets and make my dividend income as even keeled as possible because a cut from a single large position could be real trouble.

  6. That's a rational response from an income maintenance perspective.

    Kraft Heinz needs to reduce debt and grow sales, particular outside the United States. The dividend cut puts that process in motion, albeit with short term pain. Today's shareholders now own a cheaper company with better growth prospects and a stronger projected balance sheet.