Some investors bought Keurig Green Mountain (GMCR.DL) for its dividend potential. And why not? The young dividend policy was increasing quickly, and the yield hovered above 2% for a while. But the truth is, you can find much better dividend plays without straying very far from Keurig's own backyard -- and this particular payout is not long for this world anyway.
What are the challengers up against here?
Keurig Green Mountain paid out its first dividend in January, 2014. At $0.25 per share in quarterly increments, that worked out to a mellow 1.3% dividend yield, at first.
The coffee producer quickly got to work, raising the payout by 15% in 2015, and another 13% in 2016. But between announcing the 2016 dividend and actually paying it out, the company agreed to a $14-billion buyout proposal.
That deal is expected to close at some point in the current quarter, with full support from major shareholders. Keurig is going private, and the January payout will probably be the last dividend check it ever sends out. That's the end of a promising dividend-growth story.
Two better ideas
Keurig is not the dividend stock of your dreams -- not anymore. But you don't have to go far to find some fantastic replacements for that hole in your dividend portfolio. Right next door in the very same processed and packaged goods industry, you'll find household names General Mills (GIS 1.01%) and McCormick (MKC 0.68%) (MKC.V -3.92%).
General Mills, parent of such classic brands as Bugles, Betty Crocker, and Lucky Charms, has raised its payout without fail in each of the last 12 years. Today, the dividend yield stands at 3.2% -- and the company is likely to boost its payouts again in the next dividend announcement.
Spices and seasonings giant McCormick looks even tastier. This uninterrupted dividend-growth story stretches 29 years back, and the actual long-term increases have kept up with General Mills' impressive pace:
Both of these stocks have also crushed the general market in the long run. McCormick's extra-strong returns both explain and make up for a more modest 2.1% yield:
If you were looking for a strong dividend option in the processed-food space to replace the departing Keurig with as close a match as possible, both McCormick and General Mills look like solid options.
Don't cry for Keurig
For one glorious moment, on November 18, 2015, you could have bought Keurig to lock in a forward yield of 3.3%. That long-term payout play is now just a memory; but don't worry about those who actually made that trade in mid-November. Thanks to a fantastic buyout premium, share prices have jumped more than 120% higher, making opportunistic investors forget all about the lost dividend promises.
If you were in that rare Keurig cohort, you could simply cash in your winnings and move over to another dividend stock. And did I mention that both McCormick and General Mills boast five-star ratings in our CAPS system, while Keurig only holds two stars out of five? This move looks like an upgrade in many ways.