Are Conagra & Kraft Heinz the Next Big Opportunity? | 10% Dividend Yield or Value Trap? | Be Rich

[00:00:05]One quick note before we start. Some of you have been writing in saying that you prefer this in Tamil or Hindi. The video is available in multiple languages. The audio track is for you to choose. Tap on the gear icon on your YouTube player, choose the audio track and listen to the language. Same content, your voice of choice. Of course, it's AI generated. It is not me. Who has done multiple tracks.

[00:00:25]I do not know those languages.

[00:00:45]>> [music] >> Okay, good evening, tribe. Some of you have been asking me this, so I thought today I'll talk about this. Conagra yields 10%. Kraft Heinz is in single digit earning multiples. American food stocks are in 20-year low valuations. Is this exactly the pessimism you keep telling us to buy at? Is there a blood on the streets? That's a fair question, and today I wanted to answer that with a story about an investor who had bought 10% yield in June and watched half of it disappear before the end of July. Before that, standard disclaimer. I'm not a SEBI-registered anybody, and nothing in this is about a buying or selling recommendation. No stock names discussed today are any calls. This is purely The function of this channel is to educate, and today's lesson is about two of the most seductive traps in investing. And I thought, what a great way to dive into it other than taking some live examples.

[00:01:41]So, here's the timeline. On the 29th of June, Conagra Brands, the company behind Slim Jim Bird Eye frozen foods, was removed from the S&P 500. Its market cap had shrunk to roughly $6.7 billion after the stock lost more than half of its value in 2 years. At that point in time, the dividend yield on the stock was about 10%. Now, put yourself in the shoes of an income investor screening that week. 10% for a household name in the food company. A screener flags it is green. Then, on the 15th of July, exactly 45 days into his new job, CEO John Brazeal cut the dividend into half.

[00:02:15]Quarterly payout dropped from 35 cents to around 17.5 cents a share. Annualized 70 cents, freeing about 335 million dollars a year. The company also guided fiscal 2027 earnings between 1.4 to 1.5 dollars per share, below the 1.59 that analysts were expecting, according to Reuters. It took a 2 billion dollar impairment charge that produced 1.6 billion dollar quarterly loss. And here is the detail that should stop you cold, as they say, at least I hope. The stock fell just 0.4% that day. The market barely reacted to this because the market had already priced in the cut months earlier. The only people surprised were the ones who had bought the yield. Well, that happens, you know.

[00:02:59]I always say keep following the news.

[00:03:01]Read it. Find the signals in the noises.

[00:03:04]Some of us don't. So, that is the person who has suffered this. This is not one of the company's problems, though. The whole packaging food island America is on sale. General Mills, the makers of Cheerios, closed fiscal 2026 in May with a net sales of 18.4 billion dollars, down 5%. Organic sales down 2%. Adjusted earnings per share fell 16% to 3.55 dollars. The stock trades nearly 11 times forward earnings with a dividend yield above 6%. Kraft Heinz, remember Kraft Heinz? We talked about it when Warren Buffett was still running Berkshire Hathaway, trades around 11 to 12 times forward earnings. These companies are trading at some of the deepest discounts to the S&P 500 roughly two decades, a comparison multiple US outlets have made. So, what happened?

[00:03:49]The question stands. Cheap household names, fat yields, maximum pessimism.

[00:03:53]Why is this not a buying opportunity the value investing books have described? We always talk about this, don't we?

[00:04:00]Because cheapness is only half of filter five. The other half is E in the P/E, and E is melting. Walk down what is actually eating into these businesses.

[00:04:10]First, the appetite itself is shrinking.

[00:04:13]Gallup's June survey found 11% of American adults currently take GLP-1 weight loss drugs up from 3% in 2024.

[00:04:22]America's adult obesity rate has fallen from the peak of 39.9% to 36.4. For the first time in decades, the total calorie pool these companies compete for is contracting. Think about that. Second, the customers who remain are reading labels and already have some kind of, you know, caution put into them over the years of being talking about eating healthy. So, fresh food, protein, short ingredient list, the highly processed center of the grocery store, which carries the fattest margins, is exactly where the demand is leaving.

[00:04:54]Third, retailers have switched sites.

[00:04:57]Some store brands hit a record higher 23.8% on US grocery unit sales in the first half of 2026. Circana data released by the Private Label Manufacturers Association in Maconomics core spice category, store brands are nearly 40% unit volume. When Walmart's own label sits next to yours at a lower price, consumers cannot taste the difference. Your price power is gone.

[00:05:21]During the 2021 inflation wave, these companies pushed through price hikes because stimulus checks absorbed most of them. Today, retailers are refusing the increase, and with Iran conflict keeping oil elevated, packaging freight costs are rising into the walls. Now, apply the framework honestly. Filter four, ask whether you can predict this business five years out. You cannot. I cannot.

[00:05:43]Sell-side analysts and I present this as their estimate, not as a fact. Expect Kraft Heinz or judges earnings to fall around 22%. General Mills around 19% this year. Nobody knows where the decline stops. The management doesn't know either. So, which is why General Minon General Mills has announced a $3 billion cost-cutting program through the fiscal 2030. Kraft Heinz is splitting itself into two companies in the second half of this year. So, when filter four fails, filter five becomes impossible to compute. A PE of 10 on a falling earnings is not a margin of safety. It is a moving target. Next year, the E is smaller and suddenly 10 becomes 12 without a price moving at all. This is the definition of a value trap. And the 10-year evidence is quite brutal if you look at it. These major food names have lost roughly 50 to 70% of their market value over the past decade while the S&P 500 roughly tripled. Here is the uncomfortable part in this whole mess.

[00:06:41]They looked cheap in 2016, too.

[00:06:43]Investors bought them at 15 times earnings calling it value. Watch them de-rate to 12, average down watching them de-rate to 10. At every stage, your yield looks attractive and the multiple looked low. Markets are not being irrational for 10 years. The markets was correctly pricing a decline that the buyers refused to see. So, invert the question as Munger taught us.

[00:07:06]Do not ask why is the stock so cheap? I must be getting a bargain. Ask what does the seller know? A 10% dividend yield is almost an never a gift. If the market is telling you dividend is going to be cut with Conagra, the market was right. Its debt tells you the same story. Jefferies expects Conagra's leverage to rise around four times EBITDA in the fiscal 2027, even after the cut. A stretched balance sheet plus a shrinking business plus a fat dividend is equation money resolves in one way. So, if there is any path back to the for these companies is the question which I'm sure a lot of you are wondering. what's what the survivors are doing is what I'm going to say.

[00:07:44]Because none of them are defending the old model. McCormick announced a $45 billion merger with Unilever food businesses in March buying brands like Hellmann's and Knorr precisely because they face less store brand competition.

[00:07:59]It's faster growing brands from the declining ones. Analysts expect private equity to take on some of the weaker names off the public market entirely. I attribute that as an expectation, not as a fact. What would change my readings?

[00:08:11]Three things. Three things is what I'm looking at. This is the checklist worth writing down if you ask me. Volume stabilizing four consecutive quarters.

[00:08:18]So, every quarter on quarter look at volume stabilizing, not price propping up the revenue, huh? Dividend fully covered by free cash flow with room to spare and debt falling and not rising.

[00:08:29]Until those appear, a low multiple is a description of a problem, not a solution of it. And tribe, this is a lesson that does not stay in America. This screener logic operates here also in India.

[00:08:39]Whether you filter Indian stocks by dividend yield above 5 or 6%, you will find names where the yield is high precisely because the price has collapsed on deteriorating businesses.

[00:08:50]The yield column shows you the past dividend divided by the current price.

[00:08:55]It tells you nothing about whether the next dividend will be paid, which brings us to our homeworks, which I love doing with you guys. And I love the comments, you know. I really, really appreciate all of you participating in this homework. That means you're willing to learn and you take this learning quite seriously. And somewhere along the line, you'll definitely become much better investors than me or my brother. Pick any one stock from our watch list with a dividend yield above 4%. Open screener, check two numbers. Did the company's dividend payout last year exceed its free cash flow? And did the sales actually grow or only the price grow?

[00:09:29]Post that stock name and the payout versus free cash flow comparison in the comments. Most revealing answer, I will definitely allow it to get pinned. To close, the reminder. I'm not a semi-registered. Nothing over here is about a recommendation to buying or selling any American company Conagra, Kraft Heinz, J.M. Smucker, or any stock discussed here. This episode is so that the next time a 10% yield flashes on your screen, you ask yourself, "Wait, wait, wait a minute. Wait a minute. What does the market know before you ask how much to buy?" And like I said, these things are available in Tamil, Hindi, or any other language of your choice. If you're watching from some other part of the world, I don't mind some Japanese audience, too. Watch the facts, not the statements, and I'll see you tomorrow.

[00:10:04]Take care. See you.