Kellogg Company Is A Winner For Dividend-Growth Investors Kellogg Company (NYSE: K) is a very fine example of what we love about the Consumer Staples sector. While not all stocks present the same appeal, stocks like Kellogg offer value, growth, high-yield, and dividend growth supported by a fundamental turn-around story.

Kellogg Company Rises To The Occasion

Kellogg Company (NYSE: K) is a very fine example of what we love about the Consumer Staples sector. While not all stocks present the same appeal, stocks like Kellogg offer value, growth, high-yield, and dividend growth supported by a fundamental turn-around story. Kellogg has been repositioning its brands for growth and, along with the pandemic tailwind, exceeded expectations while doing so. The Q1 results are not only strong but include upwardly revised guidance we think will drive this stock back up to its previous all-time highs. That's about $20 per share or 30% upside.

Kellogg Company Proves Its Strategy Is Working

Kellogg Company produced some strong results in the Q1 period and that is versus tough comps in the prior-year period. The prior year's revenue was down about 3.0% but that was due to divestitures and reorganization efforts. This year's $3.58 billion is up 5.0% and the first apples-to-apples comparison since the efforts began. On top of that, the revenue beat the consensus by 600 basis points due to organic sales growth we take for a sign of strength. Organic sales grew 4.2% versus the -1.3% expected proving that not only is the strategy working, but eat-at-home trends are still largely intact.

Moving down, the company has been able to leverage its efforts and revenue strength over the past year. The operating income increased by 2.6%, 13% adjusted, to drive a 6% improvement in GAAP earrings. The adjusted earnings grew by 12% to deliver $1.11 in eps or $0.15 better than the consensus.

The results led the company to raise its guidance for the year but we think it is still too cautious. Kellogg Company says it is expecting revenue to be flat for the year versus down -1.0% and it is already tracking well above that level. The next three quarters of comps will be tough but we think positive YOY growth is easily achievable because guidance implies sequential deceleration of business and we don't see that happening. If anything, with reopening efforts underway already, we think sequential revenue growth is more than a possibility.

Kellogg Is A Deep-Value And High Yield

While the broad Consumer Staple sector may trade in line with the S&P 500 the valuations within the group are fairly diverse. Kellogg is not the lowest-valued company on the list trading at 16X this year's earnings but neither is it the most highly valued. Stocks like Hormel and Lamb Weston are trading in the range of 27X to 35X their earnings providing an upside target for what Kellogg Company shares may one day be worth. At the same time, the more lowly-valued consumer staples like Kellogg tend to have higher yields, Kellogg is paying close to 3.65%, and a positive outlook for dividend growth. Kellogg just declared a dividend increase that is payable to shareholders of record on May 27th.

The Technical Outlook: Kellogg Company Is Moving Higher

Shares of Kellogg Company jumped more than 6.0% after the Q1 release because of its value, growth, and yield. The 7.5% short interest is probably helping a little too and has the company on track to hit fresh highs very soon. Simply based on the valuation, this stock could be trading as much as 8X or 10X earnings higher than it is and we think that's where it's headed. The turn-around and growth story have many years to run and the charts suggest the same is true for share prices.

The caveat is that Kellogg Company is trading within a very long-term trading range with several points of potential resistance between current price action and its eventual top. The first is just above the current level near $68 with additional targets near $70 and $75.

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