Stock markets are a rollercoaster, aren’t they? They swing up and down, almost like clockwork. Just like these market shifts, investor emotions tend to follow a similar pattern. Right now, many investors are selling off assets, seeking a new destination for their freed-up cash. It seems Kraft Heinz, with its appealing high yield, has caught their eye. But is it the safe haven everyone hopes for?
### The Baby and the Bathwater
Whenever the stock market experiences a significant drop, it’s not unusual for investors to feel nervous. The first major threshold is a “correction,” which is basically when an index, like the Nasdaq Composite, tumbles 10% from its peak. Although corrections are fairly routine, they’re often seen as the first step on the road to a bear market, where declines hit 20% or more. Naturally, anxiety starts creeping in.
When this happens, investors typically react in a couple of clear ways. First, they sell off assets to shield themselves from potential losses. Usually, this means saying goodbye to the exuberantly valued stocks. But, selling these assets creates a cash pile. The next logical step? Finding a safer place to park that money. That’s when many turn to consumer staples.
Shifting cash into consumer staples is a sensible move. Companies in this sector produce everyday goods—think basic food items and household products—that people continue buying no matter what’s going on out there. You might opt for different brands, but you won’t stop purchasing essentials like toothpaste or food during tough times. Kraft Heinz fits right into this category and boasts a generous dividend, currently hovering around 5%.
### Is Kraft Heinz a Safe Haven?
Take a look at the recent pattern: over the last month, the Nasdaq Composite has dipped roughly 10%, while Kraft Heinz’s stock has gone up by the same margin. That’s a pretty notable 20% outperformance. Clearly, many investors are feeling risk-averse. Yet, it’s important to remember—don’t sell or buy recklessly.
Kraft Heinz’s high dividend yield, about 5%, stands out against the average 2.6% in the consumer staples sector. A yield that attractive often signals underlying business woes. Indeed, Kraft Heinz has struggled for a while now—ever since Kraft and Heinz merged.
Initially, the merger aimed to slash costs and boost profitability. But cutting expenses can only get you so far, and the company needed a fresh strategy. After some leadership changes, Kraft Heinz decided to concentrate on its largest brands, hoping to mirror Procter & Gamble’s successful turnaround strategy. It sounds promising, but there’s a snag.
The main brands Kraft Heinz is focused on haven’t been performing well. In the fourth quarter of 2024, organic sales for these key brands dropped 5.2%, trailing 4.5% and 2.4% declines in the previous two quarters, respectively. Even a modest 0.5% increase in same-store sales in the first quarter of 2024 couldn’t reverse the declining trend.
It’s likely only a matter of time before Kraft Heinz finds its footing and starts growing again. But at present, the company is struggling to hit its stride. While it’s true that Kraft Heinz operates in the food industry, the company’s current state is more of a turnaround project, which entails more risk than the average investor might want.
### Alternative Options Worth Considering
If safeguarding your portfolio during a market downturn is your goal, particularly through the consumer staples sector, an ETF like the Consumer Staples Select Sector SPDR ETF might be a smarter move. It offers a diversified mix of companies that provide essential, everyday products. Should you decide to handpick individual stocks, Kraft Heinz might not be the wisest choice given its shaky fundamentals. Instead, consider well-established Dividend Kings like Coca-Cola or PepsiCo, which continue to demonstrate solid performance.
