Berkshire Hathaway's (BRK.A -0.28%) (BRK.B -0.68%) investment portfolio is worth nearly $347 billion, which positions it as one of the largest holding companies in the world. Unless you have a management team that knows what it's doing, it's impossible to grow a holding company to this level.
Fortunately, the company is led by Warren Buffett and Charlie Munger -- two of the greatest investors of all time. With the unmatched track records of these two famed stock pickers, it's worth evaluating whether any of Berkshire Hathaway's holdings could be a fit for your portfolio today.
Berkshire Hathaway's stake in the consumer staples company, Mondelez International (MDLZ 0.79%), is worth just $38 million, making it one of the company's smallest holdings. However, Mondelez could be an excellent stock for a dividend growth investor to buy and hold. Here's why.
Widely recognized brands and magnificent growth
Mondelez may not be a household name to consumers. However, it's a safe bet that most households are familiar with its legendary brands, which are sold in more than 150 countries around the world. These include Cadbury chocolate, Sour Patch Kids candy, Trident gum, and Oreo cookies. Thanks to these and many more timeless brands, Mondelez is a leader in numerous snack categories, such as cookies and crackers, chocolate, baked snacks, and gum and candy.
The Chicago-based consumer staples giant recorded $7.8 billion in net revenue for the third quarter ended Sept. 30, which was up 8.1% over the year-ago period. What was behind the large-cap company's respectable growth during the quarter?
Because Mondelez's brands are a staple of many households throughout the world, the company was able to pass on 11.4% price hikes to consumers with little to no pushback. In fact, the company's volumes increased 0.7% despite the price hikes. This is what led to 12.1% organic net-sales growth in the quarter.
Mondelez's acquisitions of the well-being snack-bar brand Clif Bar and snack foods company Chipita further contributed to net-revenue gains for the quarter. But the robust U.S. dollar resulted in unfavorable foreign currency translation. This explains the company's high single-digit net-revenue growth during the quarter.
The company produced $0.81 in currency-neutral non-GAAP (adjusted) diluted earnings per share (EPS) in Q3. That amounts to a 15.7% year-over-year growth rate. Tight cost management helped the company's non-GAAP net margin edge 50 basis points higher over the year-ago period to 14.3%. Combined with a 2.1% reduction in Mondelez's outstanding share count to 1.4 billion shares, the company's adjusted diluted EPS growth topped its net-revenue growth.
And as Mondelez continues to make acquisitions that broaden its existing product portfolio, the company's revenue should continue to move higher. That's why analysts believe the company's adjusted diluted EPS will grow at a nearly 5% rate annually over the next five years.
Image source: Getty Images.
A market-topping dividend with decent growth prospects
Stacked against the S&P 500 index's 1.6% dividend yield, Mondelez's 2.3% yield is reasonably attractive for investors seeking immediate income. And with this consumer staple, income investors can have their cake and eat it, too.
That's because Mondelez's dividend-payout ratio will clock in at 49% in 2022. This is on the low end of an ideal payout ratio in my opinion for a few reasons. First, it gives the company more than enough capital to grow the business and reduce debt. Second, Mondelez has the ability to maintain its dividend through just about any environment because of the huge cushion with the low payout ratio. Finally, the company could even raise its dividend marginally ahead of earnings growth for the foreseeable future.
These factors should allow at least 7% to 8% annual dividend growth over the next few years, which is a nice mix of immediate income and future growth potential.
A wonderful business at a fair premium
Mondelez's stock is up less than 1% so far in 2022, while the S&P 500 index has shed 16% of its value year to date. Yet, the stock still seems to be sensibly valued.
Mondelez's forward price-to-earnings (P/E) ratio of 22.6 is slightly above the S&P 500 consumer staples sector average forward P/E ratio of 20.7. But this is arguably a well-deserved premium for Mondelez's fundamentals, and that makes the stock a great pick for dividend growth investors.
