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K) has managed to fare better this year. The $23 billion cereal maker has seen its share price run 13.5% higher in 2013, buoyed by strength in the consumer staples sector. Kellogg owns some of the most attractive names in the convenience food segment - cereal favorites like Special K, Frosted Flakes, and Rice Krispies round out a food portfolio that includes Keebler, Pringles, and Morningstar Farms. As long as Kellogg keeps innovating with new product offerings, it should be able to keep pushing its revenue numbers higher.
It sounds crazy, but the cereal business is cutthroat. Because Kellogg,
General Mills (
GIS) and store brands have few competitive advantages among them, the brand-name cereal makers have to market harder than most. Kellogg's track record of pumping a huge chunk of sales back into advertising budgets is promising for that reason.
Kellogg does have an advantage in the unique products it innovates -- and through its product diversification. That diversification is especially valuable for a firm such as Kellogg; because the company already has the distribution network and merchandising know-how from its cereal business, adding other foods to its business doesn't stretch the bounds of the firm's core business at all.
Kellogg has a very good track record of returning value to shareholders. It has only skipped a dividend hike in four of the last 50 years, and its current 44-cent quarterly dividend works out to a 2.8% yield. The firm's payout ratio still leaves it with room for a dividend hike in the next quarter.