The Exchange

Heinz: So Boring It Just Makes Money

The Exchange

Individual investors are getting another lesson in the joy of boring, as Warren Buffett, the master of banal who's only one of the richest people on earth, said he'll be part of a group that's buying ketchup maker H.J. Heinz (HNZ).

View gallery

.
Heinz ketchup bottles: Credit AP
Who cares. Nobody, unless you're one of the folks getting a 20% surge today and a nearly 19% premium to the best level the stock has ever reached. In this case, the $28 billion deal, including assumed debt, will see Pittsburgh-based Heinz bought for $72.50 a share by Buffett's Berkshire Hathaway (BRK-A) and investment firm 3G Capital. Its highest-ever close was $61, a record set earlier this month and one that will be a distant memory by the end of trading Thursday.

If you had Heinz yesterday, good for you -- but not just for what's transpired with the buyout. If you've been around for any length of time, you've had a stock that's climbed six of the past seven years, with a five-year mean increase of 5.2%. It tends to raise its dividend on a regular basis to sweeten that return, offering an average yield of 3.8% going back half a decade. Sales have a compound annual growth rate of 5.3%, and net income comes in at 3.1%.

That's not buy-a-third-home-in-Aspen stuff, but it is consistent, slow-and-steady-wins-the-race material. If your goal is to double your portfolio's value every year, Heinz isn't the first option. And it also hasn't been without challenges along the way, what with the difficulty in running anything trouble-free.

What it is more than anything is illustrative of a bigger story, the one that reminds the regular investor in us of how much good there can be in so many companies that aren't in the daily headlines. They're in your pantry and in your washroom instead. These are names that over time been fine for anyone who can stand to admit they own bleach and tissue paper.

No, you're probably not getting in a heated debate with your neighbor about cash flows at Kimberly-Clark (KMB) or Clorox (CLX) or some other stock that might keep setting new all-time highs and lifting its dividend. This approach may take some patience, and that's extremely difficult when you've got a crummy peanut butter maker down 3% for the year -- they don't go up every day -- and the guy next door owns a biotech that's gained 88%.

You get the idea. In the past, we've covered some of these stocks, like Smucker (SJM) and Hormel (HRL), both of which are up more than 350% since August 2000. Kellogg (K) has appreciated 154%. During that span, the S&P 500 has carved a flat line.

View gallery

.
Hormel and Smucker chart

Like anything else, these stocks theoretically could collapse and go to zero. Nothing has to climb forever, meaning this shouldn't be interpreted as advice to go buy preserved food, paper towels and disinfectant sellers and wait for the riches to roll in. You still have to do your homework because boring doesn't automatically translate into a cash machine. Alcoa (AA) is very dull. It's down 70% since 2000. Tootsie Roll (TR) doesn't light it up either, and it's lost 11% in the past 12 years. Safeway (SWY) has dropped 57%.

The point is: Don't overlook them because they're mundane. Not everything has to be Apple (AAPL) or Amazon (AMZN). You might not get rich quick, but you might do all right. Heinz shareholders did. Even more now that Buffett's come along.

Rates

View Comments (109)