It's been said countless times by yours truly and many others in the investing community, but it bears repeating: The chairman and chief executive officer of Berkshire Hathaway (BRK.A -0.76%) (BRK.B -0.69%), Warren Buffett, is among the greatest investors in history.
That's why it couldn't hurt to consider the holdings within Berkshire Hathaway's $353 billion investment portfolio for your own portfolio. And while Mondelez International (MDLZ -0.27%) is a smaller stake in the portfolio (valued at $38 million), the stock looks like a no-brainer pick for income investors. Here are three reasons why.
1. A high-quality brand portfolio with revenue and earnings on an upward trajectory
Mondelez International is a truly global snacks business, with its products being sold in over 150 countries around the world. The company differentiates itself from competitors with an absolutely stacked product portfolio: These snack products include the Belvita breakfast biscuits brand, the Oreos sandwich cookie brand, and Wheat Thins cracker brand. As a result, Mondelez enjoys the leading global position in the biscuits market (i.e., cookies and crackers snack category) and second place in the global chocolate industry.
The consumer staples company's net revenue surged 13.5% year over year to $8.7 billion in net revenue during the fourth quarter (ended Dec. 31, 2022). What led to Mondelez's impressive topline growth in the quarter?
The company generated 15.4% organic net revenue growth for the fourth quarter. Staying ahead of inflation, Mondelez implemented price hikes throughout its business. This powered net revenue higher by 13.8% over the year-ago period. Because of the inelastic nature of its products, consumers weren't put off by these raised prices. This explains how the company's volume rose at a 1.6% rate year over year during the quarter.
Acquisitions of the snack-bar brand named Clif Bar and the snack foods company called Chipita also contributed to net revenue growth in the quarter. But this was partially offset by strength in the U.S. dollar, which resulted in unfavorable foreign currency translation for Mondelez.
The snack foods giant's currency neutral non-GAAP (adjusted) diluted earnings per share (EPS) increased 9.9% over the year-ago period to $0.73 for the fourth quarter. Significantly higher selling, general, and administrative expenses pushed non-GAAP net margin nearly 150 basis points lower year over year to 11.5% during the quarter. This was partially neutralized by a 2.1% decrease in Mondelez's outstanding share count, which explains how adjusted diluted EPS growth lagged net revenue growth in the quarter.
Additional acquisition activity should fuel healthy earnings growth in the future: Analysts expect that Mondelez's adjusted diluted EPS will compound at 6.6% each year over the next five years. Putting this into perspective, that isn't much less than the confectioners industry average earnings growth forecast of 7.7%.
2. A market-beating payout that can keep rising
Mondelez's 2.4% dividend yield is enticing when compared to the S&P 500 index's 1.6% yield. And this isn't just some dividend stock with high starting income and stale dividend growth: Mondelez's quarterly dividend per share has soared from $0.13 to $0.385 over the past 10 years.
MDLZ Dividend data by YCharts.
Mondelez appears poised to continue delivering strong dividend growth to shareholders in the years ahead. Its manageable dividend payout ratio of just below 50% in 2022 leaves the company with the needed capital to expand its business and repay debt. This is why I believe that high-single-digit to low-double-digit annual dividend growth can continue in the medium term.
3. A reasonably valued stock
Mondelez is a business with world-class brands. And its valuation arguably sweetens the pot to make the stock a buy for income investors.
Mondelez's forward price-to-earnings (P/E) ratio of 19.1 is moderately lower than the confectioners industry average forward P/E ratio of 21.2. Even considering its slightly lesser growth prospects versus its industry, this is a reasonable valuation for such a top-notch stock.
