Kellogg (NYSE: K ) is a food giant that has been paying uninterrupted dividends since 1925 and has consistently raised its dividend payments for the past nine years. Moreover, Kellogg has shown its commitment to increasing future shareholder value through its multi-year growth and efficiency program, which boosts the company's overall profitability. At the current price, is Kellogg a better choice than its peers General Mills (NYSE: GIS ) and Campbell Soup (NYSE: CPB ) ?
Kellogg's initiatives to drive business forward
Kellogg has recently announced the ongoing implementation of its Project K, with a focus on four key areas: cereal, snacks, frozen foods, and emerging markets. Kellogg considers the cereal business to have long-term growth potential and it plans to keep strengthening its cereal's global leadership position. Second, one of Kellogg's ambitions is to lead the global snacks industry. With its Pringles acquisition, Kellogg became the second-largest savory-snack producer in the world. Next, Kellogg will continue to grow its frozen food business in North America. Last but not least, Kellogg will grow much faster if it can expand its footprint in emerging markets.
Kellogg's Project K focuses on cost savings, which will include plant consolidation and excess capacity elimination. By 2018, Kellogg expects to deliver annual cash savings of around $425-$475 million. Around two-thirds of those savings will come from cost of goods sold, while the other third will be from SG&A. In order to achieve that target, Kellogg will reduce its global workforce by as much as 7% in the next four years. Moreover, operational efficiency and margins will be improved by the consolidation of Kellogg's business services across different functions and regions.
Recently, Kellogg has streamlined its supply chain infrastructure, including the closure of a snacks plant in Australia and ready-to-eat cereal plants in both London and Ontario. At the same time, the company expanded its cereal and snacks plant in Rayong, Thailand. The shift of its plants toward Asia will significantly reduce costs for the company.
Campbell Soup and General Mills also focus on cost savings
Campbell Soup will also rely on cost-reduction initiatives to drive future growth and productivity. During the past two years, Campbell Soup has sold four plants and streamlined its North American business in an ongoing effort to increase supply chain efficiency. Those supply chain restructuring initiatives have delivered annual cost savings of $40 million.
General Mills also targets big savings of up to $4 billion within this decade with its Holistic Margin Management, or HMM, plan. The company reported that it has achieved as much as $1.4 billion in savings since 2010. As General Mills expects input cost inflation to be around 3% in 2014, HMM savings will reach a record annual level, improving the company's overall profitability.
There are not many differences in terms of both valuation and dividend yield between Kellogg, General Mills, and Campbell Soup. Kellogg is a bit cheaper than the other two with a forward earnings valuation of 14.86, while the forward valuations of both General Mills and Campbell Soup are 15.8 and 15.66, respectively. Income investors might love Campbell Soup with the highest dividend yield in this group at 3.20%. General Mills ranks second with a 3% dividend yield, while the dividend yield of Kellogg is a bit lower at 2.90%. However, I like General Mills the most as it only pays out half of its earnings. In order to have that juicy dividend yield, Campbell Soup has to pay out nearly all of its earnings in dividends.
My Foolish take
Income investors will do no wrong investing in these three businesses for the long run, as they will continue to improve their profitability, productivity, and efficiency through their restructuring initiatives. Moreover, investors can get consistently growing dividend payments and good yields. Among the three, I like General Mills the most as it can afford to increase its dividend because it has the most conservative payout ratio.
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