KRAFT HEINZ (KHC): Pass me the 7% Dividend, Please
Brought to you by Drew Millegan & The Woodworth Contrarian Fund
Kraft Heinz has been passed around a lot between institutional investors over the last few years. The staying power of the brands is nothing to be scoffed at, and the global reach is the envy of staples companies everywhere, but the company has also definitely been the victim of financial engineering.
The company has effectively spent the last several years digging itself out of the hole that had been dug for it, even going so far as to reject an effort by Berkshire Hathaway to split the company up again several years after combining. Doing so was a bold move, in no small part because Warren Buffet’s flagship investment company appears to have largely unwound their position in KHC in response to this rejection.
For its own part, KHC remains strongly committed to maintaining a healthy dividend to investors, despite repeated criticism of freezing the dividend since its cut in 2019. This is an understandable criticism from investors, but given that the company’s yield is well over 7% at current prices, the company’s dividend relative to other investments is competitive. There are plenty of companies out there that fail to yield more than a relatively low-risk government treasury, if they pay a yield at all. By comparison, KHC’s dividend alone keeps the company attractive to new investors.
From an operational perspective, it also makes a lot of sense to hold off on dividend hikes and stock repurchases while the company undergoes its transition into a more consolidated company. What good is a higher dividend, after all, if the underlying business isn’t growing and improving? KHC has a lot going for it - long-term debt to equity of just 49% at last read, full year free cashflow in 2025 was over $3/share and growing, with much of that being plowed right back into capital expenditures and company reinvestment without elevated borrowings, rather than immediate raised dividends and stock buybacks. KHC’s commitment to operational efficiency should ensure that the dividend is not only maintained, but result in higher internal rates of return for shareholders tomorrow in place of short-term returns to shareholders today.
In the long-run, our fund maintains KHC as a buy, with a price target fair value of around $34.50 per share. Whether or not the company achieves this in the short run is another question, but in the meantime, we’ll continue to enjoy our 7% yield along with stability in a volatile and risky environment. The potential upside is, of course, a bonus.
TAKE A LOOK AT OUR PREVIOUS COVERAGE OF KHC HERE:
Disclosure: This analysis is for informational purposes. Position sizing and risk management are essential. Do your own due diligence.
Please note that the Woodworth Contrarian Stock & Bond Fund, LP, of which the Millegan Brothers manage and are invested in, currently hold a position of KHC as of the publication date of this article. They may or may not choose to modify their exposure to this name for any reason at any time. This is not a recommendation to buy or sell KHC or any other name - investments incur significant risk, our risk tolerance may be significantly higher than the average investor, and any discussion in this article does not take into consideration your individual circumstances.
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Quinn Millegan (left) & Drew Millegan (right)
About the Managers: Brothers Drew Millegan and Quinn Millegan manage the Woodworth Contrarian Stock & Bond Fund, a hedge fund based in McMinnville, Oregon. They grew up in the finance world, and specialize in contrarian investment strategies in the US Public and Private markets.
Something missing from your portfolio may be a diversification into the Woodworth Contrarian Fund for accredited investors. Now is a great time to diversify your portfolio with an investment into a multi-award-winning fund. An exposure to a value-based contrarian strategy is a unique opportunity for your long term capital that you’re seeking aggressive returns for. With nine years of the Woodworth Fund under management, the Millegan Brothers are trained stock-pickers and experienced venture capital investors with a proven track record. Give us a call today to discuss a liquid investment with independent administration and independently audited monthly statements and a personal relationship.
