Kraft Foods Group (NASDAQ:KRFT) has a long history of paying dividends to shareholders. This shouldn't be much of a surprise, because many consumer products companies are highly valued for their stable distributions. Kraft operates in packaged foods, an industry that lends itself well to reliable dividend payments to investors. After all, everyone needs to eat, and Kraft holds a diversified portfolio made up of dozens of brands, many of which could likely be found in virtually every household across America.
Kraft is about to send even more cash back to its shareholders. The company recently declared its next quarterly dividend. Fortunately for shareholders, Kraft is going to put even more cash in its investors' pockets. The company increased its quarterly dividend to $0.55 per share, up from $0.525 previously. That represents a nice 5% bump versus the prior level.
Here's why Kraft Foods has the confidence to increase its dividend, and what shareholders need to know.
Slow and steady wins the race
Throughout this year, Kraft Foods has put up solid financial results. Organic sales grew 1.5% last quarter, year over year, and free cash flow was up 13.8% through the first six months of the year.
The company saw success across a few of its major categories last quarter. Revenue from its cheese brands grew 1.6%, refrigerated meals grew 2.6%, and snack nuts increased 1.4% versus the same period last year. These three brands are flagship segments for Kraft Foods, because they collectively represent 52% of the company's total revenue.
Kraft Foods has produced solid growth to begin this year. Here are the investments the company is making to help secure its future.
Product innovation to drive future growth
At first glance, you might not think a packaged-food company could possibly innovate. However, Kraft Foods is investing in a new partnership to energize its product portfolio. In August, Kraft Foods announced a partnership with Keurig Green Mountain, (NASDAQ:GMCR). The two companies formed a multi-year licensing, manufacturing, and distribution agreement. Together, the two companies will utilize the coffee brands under Kraft Foods' existing portfolio, as well as Keurig's revolutionary at-home brewing machines.
Going forward, Kraft Foods' branded coffees, which include Maxwell House, Gevalia, and Yuban, will be sold across several Keurig portion formats. These are the single-serve K-Cups, the four-cup K-Carafe pack, and the half-gallon Keurig Bolt pack. The K-Cup and K-Carafe packs will also both be available under the newly launched Keurig 2.0 Brewing System.
This is a wise strategy for Kraft, because Keurig's at-home, customizable brewing technology has been a huge success. Consumers have really taken to the idea of making optimal portions of coffee for times when brewing an entire pot isn't necessary or desired. Indeed, Keurig grew net sales and earnings per share by 6% and 21%, respectively, during the last nine months. Brewer shipments grew 13% last quarter.
The partnership also involves the McCafe brand. Kraft recently formed a separate partnership with McDonald's, in which the two companies will collaborate to package the McCafe brand for sale in grocery stores and other retailers.
Collectively, these initiatives will help Kraft Foods branch out into newer, high-growth product areas that should help keep growth intact in 2015 and beyond.
The Foolish bottom line
Kraft Foods investors are about to get a little extra cash from their investment. The company now offers a nifty 3.8% dividend yield. The dividend will be payable on October 31 to shareholders of record as of October 17. That means that investors who want to pocket that extra cash will have to buy the stock by October 14th.
Kraft Foods has produced the steady type of growth that most investors expect from a consumer food company this year. Its growth has allowed the company to put up another dividend increase.
Going forward, Kraft Foods will lean on its newly formed partnerships with Keurig Green Mountain and McDonald's to expand its coffee lineup. Among its other brands, Kraft is seeing solid growth in its cheese, refrigerated meals, and nuts categories. Continued growth will almost certainly allow Kraft Foods to pass along another dividend increase this time next year.
Bob Ciura owns shares of McDonald's. The Motley Fool recommends Keurig Green Mountain and McDonald's. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.