Motley Fool: Cereal giant is a serial dividend payer

The Motley Fool Take

Kellogg Company is a name you probably associate with cereal, but its cereal brands account for only about a third of its revenue today because Kellogg has been diversifying, focusing on more growth-oriented areas.

Frozen foods, including meatless alternatives, now make up around 13% of revenue. And snacks, including brands like Pringles and Cheez-It, account for just over half of the revenue pie. Meanwhile, Kellogg has adapted to the changing market, jettisoning older brands with slower growth rates, such as Keebler.

Despite its big overhaul, Kellogg has continued to reward investors with regular dividend increases. It has paid quarterly dividends without interruption for nearly 100 years, and has boosted its payout annually for most of the last 17 years. The dividend recently yielded a hefty 3.7%.

To be fair, Kellogg’s overhaul is relatively recent, and the food industry has been through an unusual period, first with the coronavirus and now with rising inflation. So Kellogg really hasn’t had a chance to demonstrate how its new approach works in a more typical environment. But it does seem to be going in the right direction.

Investors have been in a “show me” mood, however, and Kellogg’s stock was recently around 24% below its 2016 highs. If you’re looking for a company with a proven record of prioritizing its dividend, Kellogg is worth a closer look.

Ask the Fool

From G.H. in St. Joseph, Mich.: I have a Roth IRA. If I sell a stock in it at a loss, can I deduct the loss on my tax return?

The Fool responds: Nope. In a regular taxable brokerage account, if your losses exceed your gains, you can offset up to $3,000 of income, carrying any excess forward to future years. But IRAs work differently and do not permit deducting losses.

IRAs offer other benefits, though. Traditional IRAs give you an upfront tax break, letting you shrink your taxable income by the amount of your contribution. Roth IRAs, if you follow the rules, let you withdraw money in retirement tax-free. That can be a big deal if you’ve grown the account to be worth many thousands of dollars.

From R.T. in Lake City, Fla.: What are NFTs?

The Fool responds: Non-fungible tokens are complicated, but in a nutshell, each NFT is a unique digital asset, representing ownership of a specific asset. It’s recorded via blockchain technology, like cryptocurrencies, but whereas one Bitcoin is interchangeable with another (just as one dollar is interchangeable with any other), there is only one of each NFT.

NFTs exist for a wide range of digital material, such as art and music (including GIFs and video clips), along with other collectibles. They’ve grown in prominence as more people have begun selling — and buying — NFTs. Twitter co-founder Jack Dorsey, for example, sold his first tweet, autographed, as an NFT for more than $2.9 million. The fact that the tweet merely says “just setting up my twttr” demonstrates that NFTs can seem very — well, speculative. They’re probably best avoided by average investors.

The Fool’s School

University of Pennsylvania professor Jeremy Siegel’s book Stocks for the Long Run (McGraw-Hill, $42), first published in 1994, has become a classic. Its success is largely due to the depth of Siegel’s research, which draws from data on investment returns going back to 1802. Here are six “guides to successful investing” that he offers:

1. “Keep your expectations in line with history.” Siegel notes that over long periods, the stock market has averaged annual growth of around 9%. So don’t expect to average, say, 15% or 20%.

2. “Stock returns are much more stable in the long run than in the short run.” The longer your investing time frame, the more of your money should be in stocks rather than bonds.

3. “Invest the largest percentage of your stock portfolio in low-cost stock index funds.” The Motley Fool has also long recommended low-cost index funds, such as those that track the S&P 500 or the entire U.S. or world stock market: That’s the easiest way to earn roughly the market’s return.

4. Invest a meaningful portion of your portfolio in international stocks. Siegel suggests parking a third of your assets in the stock of companies not based in the U.S. You might achieve this in part by buying U.S. stocks that generate much of their revenue abroad. Low-cost index funds that track the world’s stock markets can also be effective.

5. Favor value stocks — those with lower price-to-earnings ratios and higher dividend yields — as they have “superior returns and lower risk than growth stocks.” Go ahead and buy some exciting growth stocks if you must, but Siegel prefers stocks that seem undervalued, offering a margin of safety. Great investors such as Warren Buffett would agree.

6. Prepare to be steady in your investing and not give in to emotion. There’s much wealth to be amassed in stocks, but you’ll need to stay rational, ride out volatility and avoid buying indiscriminately due to greed or selling abruptly due to fear.

My Dumbest Investment

From D., online: I bought Facebook at its initial public offering. It lost a little bit after that, so I sold my shares. It was a classic short-term reaction, with me being blind to my long-term objective — building wealth. I can’t even look at Facebook’s stock price now — it just makes me want to cry.

The Fool responds: It looks like you learned all the right lessons. Short-term investors often miss out on phenomenal gains that occur over many years or decades.

Facebook’s debut on the public market in 2012 didn’t go as smoothly as hoped. The stock, initially priced at $38 per share, started trading at $42.05, reflecting great interest and demand. (It was the third-largest U.S. IPO ever, at the time, with the company valued around $104 billion.) Three months later, though, the shares had dropped 50%, in part due to questions about the company’s lofty valuation and to allegations that financial information had not been properly disclosed.

Many stocks soar at their IPOs only to retreat in the following months. It’s generally smart to avoid IPOs, giving the shares time to settle down. And once you invest in a company in which you have great faith, hang on — for a long time and through ups and downs. Facebook shares were recently up more than 800% from where they began trading.

Who am I?

I trace my roots back to 1962, when a veteran from Oklahoma with variety store experience opened his own store. I went public in 1970. By 1990, I was America’s biggest retailer. As of 2000, I employed more than a million people and sported nearly 4,000 stores and clubs worldwide. More recently, I had over 10,500 locations (in 24 countries) and my global workforce topped 2 million. I serve about 220 million customers each week. My fleet recently featured 6,100 tractors, 61,000 trailers and more than 7,800 drivers who annually drive, on average, 100,000 miles each. Who am I?

Can’t remember last week’s question? Find it here.

Last week’s trivia answer: Delta Air Lines

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