1 Dividend Stock to Retire On
This Dividend Stock Hasn’t Missed a Payment Since 1925
Today’s article highlights one of my favorite “forever assets,” Kellogg Company (NYSE:K).
I coined the term “forever asset” to describe a group of top dividend stocks that have rewarded shareholders for decades. These wonderful businesses enjoy entrenched market positions, allowing them to crank out wide profit margins year after year.
Over the past few months, I’ve covered a number of these companies. I’ve shown you how boring firms like soda, railroads, and cell phone towers can make great investments. And if you’re looking for a retirement income stream, these boring businesses make for some of the best stocks around.
Take, for instance, cereal. Kellogg is the leading producer of ready-to-eat cereal, but also sells crackers, potato chips, and other assorted snacks. And while you won’t impress any MBAs sticking this name in your portfolio, I love the business. Here are my reasons.
To start off, it’s depression-proof. No matter what the economy is doing, people need to eat. Shoppers buy food regardless of inflation, interest rates, or widening credit spreads.
The financial crisis tested this foundation. Yet between 2008 and 2009, shares of Kellogg barely budged. When you find a company that can hold its value during the worst recession in living memory, you know you’re looking at a wonderful business.
Next, it’s an incredibly lucrative business. Kellogg earns 40% gross margins. Over the past five years, the company has collected $0.37 in profit on every dollar of equity invested in the business. I can only think of a handful of businesses in the world that can earn such returns year after year.
Kellogg can credit its success to its portfolio of top brands. You can buy cereal and snack products from hundreds of different producers. However, you can only buy “Pringles,” “Rice Krispies,” and “Pop Tarts” from one company: Kellogg. People generally stick to the brands they trust, especially when it comes to the things they feed to their kids.
Finally, this is one of the most reliable dividend payers around. Kellogg has been mailing out checks to shareholders since 1925—back when Calvin Coolidge was President. Today, Kellogg pays an annual dividend of $2.08 per share. That comes out to a yield of 2.9%.
And as you can see in the chart below, that three-part formula has resulted in outsized returns for shareholders.
Source: Kellogg Company
Bottom line: Kellogg is a true “legacy asset,” a wonderful business that has generated wealth for generations. No, you won’t impress any colleagues around the water cooler, but if you’re looking for reliable retirement income, this is one top dividend stock to count on.