Apr

9

Creating Value? MO – KFT

April 9, 2007 |

On April 02 2007 I got Kraft (KFT) shares. In the last week they have oscillated around the $31/share mark. Altria (MO), which enjoyed a healthy $85/share price a few months ago dropped to the $70/share as the spin-off closed on us, and have stayed there for the time being. When I calculate the amount of money I had when Altria was $85/share and compare it to the value of my Kraft and Altria shares today I notice that I may have gained around 7% in the spin-off process, plus the fact that my Kraft shares are a lot safer from litigation than my Altria shares. After all, people give preferential treatment to the artery clogging cheese that they would never give to the cancer-causing nicotine.I also end up with $1/share more in dividends a year out of Kraft that I wasn’t getting before – very in line with one of my yearly goals.

Is this too good to be true? I always ask myself this question upon finding out good news. After all, if Altria didn’t want it, it may be because they didn’t like it. Then again it may be for the stated reason: to protect it from litigation, as it was recently rumored that Altria may spin off Phillip Morris as well.

It will certainly require further investigation before I decide on what to do with the cheese that someone moved into my portfolio.

In the meantime, read some other things I have written about Altria:

How Much Do I Like Altria? - July 24th, 2006

Altria (MO) just overcame a big liability hurdle that was slowing its growth. Now they are in a good position to split the vice and non-vice components of the well managed company. As a result, the stock price jumped even when most of the equity traders where selling other stocks. Right now they are at their highest point in the last 52 weeks, and in the last five years for that matter. Is it at the top, or in the middle of a rapid ascension?

Originally I bought Altria as a cash cow. Even today, with a stock price close to $80 per share it is giving me a healthy 4% in yield. They haven’t increased its dividend in over a year, and I am expecting them to do so anytime soon – if they want to stay in my portfolio.

Right now I am keeping it. However, I plan to sell it based on the current disciplines:

  • P/E hits 20
  • Dividends given doesn’t increase by 8/31/2006



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