Kellogg's wide assortment of large and well-known brands has served investors well for more than a century. However, all companies need to adapt to changing consumer tastes, and Kellogg has really struggled to do that over the past decade.
While management's turnaround plan sounds reasonable, and the firm's long-term growth guidance (about 7% cash flow and dividend growth per year) looks appealing at first glance, investors have reason to be skeptical that it can deliver on that plan.
At the very least, realize that Kellogg, while likely a safe income investment, is probably going to have to grow its dividend slower than in the past, in order to maintain a healthy balance sheet and fund its ongoing turnaround.
As conservative investors, our preference is to invest in companies with stronger long-term outlooks and clearer paths to profitable growth. Many parts of Kellogg’s portfolio appear to remain in the crosshairs of changing consumer tastes, and management’s long-term track record of adapting the business doesn’t inspire much confidence.