- (0:30) - Did Berkshire Make A Mistake With Kraft Heinz?
- (3:00) - Where To Find Safe Stocks
- (7:20) - Are Dividend Paying Stocks The Way To Invest Safely?
- (12:50) - Episode Roundup: KHC, GE, TUP. PM, PSXP
Welcome to Episode #131 of the Value Investor Podcast
Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio service, shares some of her top value investing tips and stock picks.
Warren Buffett has been doing a mea culpa lately about Berkshire Hathaway’s investment in Kraft Heinz (KHC).
Not only did Berkshire take a $3 billion write down thanks to it but when Kraft Heinz shares fell 27% in a single day, Berkshire “lost” $4.3 billion.
Buffett admitted he overpaid for Kraft but he also said he has no intention of selling his investment now.
Many investors, however, are having second thoughts about some of the older blue-chip stocks.
In 2018, General Electric (GE) slashed its dividend and shares sank to a multi-year low.
In January 2019, Tupperware (TUP) cut its dividend by more than 50% and shares plunged 17%. It was the first dividend cut for the company since 1996.
Are There Any Stocks that are Considered to be “Safe”?
The quick answer is: no.
Even Buffett has been caught in some unexpected surprises with his investment even though Kraft owns such well-known brands such as Jell-O, Kraft Macaroni and Cheese and Kool-Aid which have been around for decades.
Longevity doesn’t necessarily equal safety.
Which Companies Are Raising the Dividend and Yet are Still Cheap?
While not a sure thing, a rising dividend, year-after-year, at least provides some level of comfort to investors even though it’s not a sure thing that the company is well-managed, as we saw with GE.
These two companies have been raising their dividend for years.
- Philip Morris PM has raised its dividend every year since 2008. This is an international tobacco company so regulations and changes in trends will impact its business, however. It has a forward P/E of 16.2 and its dividend is yielding 5.3%.
- Phillips 66 Partners LP PSXP is a refiner which has raised its dividend every year since it was spun-off from ConocoPhillips in 2013. It’s cheap with a forward P/E of 12. It also has a juicy dividend yield of 6.6%.
They are both Zacks Rank #2 (Buy) stocks.
What’s the Lesson from the Kraft Heinz Blow-Up?
Every investor should always do their research on any company they buy.
But even research might not protect you from a dividend cut or government investigation. Even Warren Buffett has gotten caught in what is going on at Kraft Heinz.
No stock is “safe” which is why all investors should be diversified.
While Kraft Heinz is a big position in Berkshire’s portfolio, it has plenty of cash on hand and other investments in which to ride out the volatility in Kraft Heinz.
What else should you know about “safe” stocks?
Listen to this week’s podcast to find out.
[In full disclosure, the author of this article owns shares in PXSP.]
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Tupperware Brands Corporation (TUP) : Free Stock Analysis Report
Phillips 66 Partners LP (PSXP) : Free Stock Analysis Report
General Electric Company (GE) : Free Stock Analysis Report
The Kraft Heinz Company (KHC) : Free Stock Analysis Report
Philip Morris International Inc. (PM) : Free Stock Analysis Report
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