I’m buying this Warren Buffett dividend stock with a 4% yield

Kraft-Heinz stock comes with a 4% dividend. It’s had a difficult time lately, but I think that the dividend stock looks like a bargain at today’s prices.

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Warren Buffett at a Berkshire Hathaway AGM

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With share prices rising, it can be difficult to find attractive investment opportunities. But I’ve found a dividend stock in the Berkshire Hathaway portfolio that I like the look of right now.

The stock is Kraft-Heinz (NYSE:KHC). It’s Berkshire’s sixth-largest holding, making up around 4% of the conglomerate’s stock portfolio.

While the stock has had a difficult past, I think that its future prospects look much better. That’s why I’m looking at buying shares for my portfolio today.

Past struggles

Kraft-Heinz is a relatively young company. It was founded in 2015, when Berkshire-owned Heinz merged with Kraft Foods Group.

Berkshire’s operating partners in the deal – 3G Capital – set about restructuring the new business. This involved cutting costs and reducing staff numbers in an aggressive pursuit of profits.

Despite some initial success, the result was disastrous. In 2019, the company was forced into a $15.4bn write-down of its assets.

In general, the underlying business has struggled. Revenue has been largely static and profits have declined.

As a result, the stock chart makes for grim reading. Since reaching a price of $96 per share in 2017, Kraft-Heinz shares have fallen by 60%.

The stock currently has a 4% dividend yield, which I think looks enticing. Kraft-Heinz has an ugly history, but I think things look more promising going forward.

A brighter future

I can understand that Kraft-Heinz’s history is enough to put a lot of investors off – and I think that’s totally reasonable. But I think that the stock is attractive at these prices.

As I see it, the company’s struggles are the result of underinvestment in its brands. Aggressive cost-cutting after the merger promoted short-term profits at the expense of long-term sustainability.

This left the company’s brands struggling to stay at the front of customer’s minds. And for a company like Kraft-Heinz, which attempts to use its brand power, this is very bad.

Since 2019, the company has sought to turn things around. Instead of pursuing short-term efficiencies, it has been looking to invest in the growth of its business by supporting its brands.

Management is targeting a 30% increase in marketing spending over the next four years. This, I think, should help reignite growth in both sales and profits.

The company is still seeking to be more efficient. But it intends to use the efficiency savings to reinvest into the long-term future of its business, rather than pursuing short-term gains.

In my view, the company is now being run in a way that should set it up to do well over time. As a result, I’m looking at adding shares to my portfolio today.

A dividend stock to buy today

Kraft-Heinz has had a rotten few years. But I think things look much better now than they did before.

The company has reduced its debt by around 30% since the end of 2018. In addition, the business maintains operating margins around 20%, which compares favourably with its peers.

With a forward price-to-earnings (P/E) ratio of around 13 and a 4% dividend yield, I think that shares are a bargain. This is a dividend stock I can see myself buying for my portfolio.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Stephen Wright has positions in Berkshire Hathaway (B shares). The Motley Fool UK has no position in any of the companies mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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