Key Points
Now that Warren Buffett isn't in charge of Berkshire's portfolio, Kraft's stock may be on the chopping block.
The food company faces a challenging road ahead as it tries to turn its business around.
Even with a high dividend yield, investors aren't buying up the stock.
- 10 stocks we like better than Kraft Heinz ›
Not every Warren Buffett stock has been an amazing investment over the years. One of the largest holdings in the Berkshire Hathaway portfolio over the years has been Kraft Heinz (NASDAQ: KHC). Berkshire owns nearly a 28% stake in the food company.
The danger for Kraft investors is that with Buffett no longer the CEO of Berkshire and Greg Abel taking over, the company may be tempted to dump all or most of its shares in the iconic food business, given how poorly it has performed and the challenges it faces. Could this monster dividend stock potentially go to $0?
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Will Abel slash Berkshire's investment in Kraft?
Kraft has been in Berkshire's portfolio for years, but there were reports earlier this year that it was contemplating selling a big chunk of its position in Kraft. However, Abel has since said that he is not currently considering that. Kraft was previously looking to split off its business, which Buffett wasn't thrilled with, and it has since paused that idea and instead will try to turn things around.
But it won't be easy, with many consumers opting for healthier options and GLP-1 drugs curbing appetites. Its top line has been going in the wrong direction, with Kraft's sales declining for the past two years. The business faces a tall task with turning things around, and over the past five years, the stock has declined by 45%, pushing its yield up to 7.3%, which is far higher than the S&P 500 average of 1.1%. While that may seem like it would be enticing to dividend investors, many still steer clear of Kraft given the risks and uncertainty it faces in the long run.
It may not go to $0 anytime soon, but the stock isn't heading in the right direction
Kraft has many high-quality brands in its portfolio, which is why I don't believe it'll go out of business, nor will the stock hit $0 in the near future. However, it's also not a safe stock to buy, and it may only be a matter of time before its dividend is cut or suspended. If that happens and Berkshire also sells a significant amount of Kraft stock, it could go into an even deeper tailspin.
There's a ton of downside risk with Kraft's stock, arguably much more than there is possible upside. If you're intrigued by the stock, you may want to consider putting it on a watch list. However, as a dividend stock, there are far better and safer options than Kraft.
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David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool recommends Kraft Heinz. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
