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Buffett’s New Business and Weekend Reading 2/16/2013

Unless you don’t read or watch much financial news (which honestly might not be such a bad idea for the most part), you may have heard that Warren Buffett’s Berkshire Hathaway with the help of 3G Capital has purchased the Heinz Company (as in the ketchup).

This has been stated to be the largest acquisition ever in this industry.

The deal is worth over $23 billion, which was roughly a 20% premium to the existing stock price. I find this interesting, because I wouldn’t have called Heinz a particularly cheap stock, and this pushes up the P/E to nearly 23. For a company with a dividend yield of under 3.5% and a dividend growth rate of under 7.5%, a P/E ratio of well into the 20′s is a bit on the high side.

On the other hand, the returns for Berkshire are practically guaranteed to be decent at least, and this is exactly Buffett’s type of company. They produce the dominant ketchup brand along with some other diversified food products, and now they’ll have the financial support of being in the Berkshire Hathaway conglomerate.

The news pushed up the prices of other stocks in the industry a bit, like General Mills, Campbell Soup, and Smucker’s, due to speculation about further consolidation in this industry. An advantage of owning smaller blue chip stocks is that they can potentially be bought out for large premiums, so for stocks like Smucker’s, Church and Dwight, and Hasbro, I would never be particularly surprised if I woke up to news of one of them being bought out by a larger company.

Weekend Reading

Here are some good reads from around the web:

Oneok Partners Analysis
Dividend Growth Investor analyzed Oneok, and considers it to be at an appropriate valuation to increase his position on.

14 Stocks Taking Their Dividends up a Notch
Looking for stocks raising their dividends, including some lesser known ones? Take a look at D4L’s list of 14 recent dividend increases.

When to Transition to Owning ETFs and Stocks
Mark from ‘My Own Advisor’ discusses when to consider switching from mutual funds to stocks and ETFs.

TD Bank Dividend Fact Sheet
As an engineer that blogs about dividend investing, it piques my interest when I see another engineer that writes about finances. Here’s an article by Dividend Engineering that shows a lot of good info on TD Bank.

Recent Buy: Coca Cola
Dividend Mantra recently bought Coca Cola stock after it had a nice little drop due to quarterly results. Dividend Engineering actually also bought into Coke.

Live Wealthy: My Day at Habitat for Humanity
Barbara Friedberg talks about her day helping out with Habitat for Humanity projects.

Blog Carnivals that recently included DM articles:
Carnival of Money Pros
Carnival of Retirement
Carnival of Investing
Money Mail Carnival

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Comments

  1. Hi DM! Thanks for the mention! It would be interesting to find out how many dividend investors are actually engineers. Have a nice week-end! TDE

  2. Matt,

    Thanks a lot for mentioning me! I am posting an article tomorrow on Heinz. The gist of it is that the stock is trading ok at 20 times 2012 earnings ( $3.52/share). If you are buying the whole business, i guess a premium is justified. But I think that they would get decent growth, and rising cashflows for decades to come.

  3. Matt,

    Thanks for including me! Always appreciated. I’ve gotta get back to posting some weekend round-ups myself. Life has a habit of getting in the way!

    Enjoyed the interview with Van Knapp! Good stuff there. I’ve looked at TGH before, but surprised to see it show up as one of the three picks. The consistent negative cash flow and stressed balance sheet has kept me away so far.

    Hope you’re having a great weekend!

    Best wishes!

  4. Thanks for including me Matt!

    I expect more consolidation going forward.

    Another smart move by The Oracle.

    On another note, I suspect by their analytical nature, most engineers make good investors.

    I’m a chemist by trade :-)

    Mark

  5. Great articles here, thanks for sharing!

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