Kraft Heinz’s Divestiture Play: A Contrarian Opportunity in Consumer Goods?

Kraft Heinz (KHC) has embarked on a bold restructuring strategy, divesting non-core assets like Oscar Mayer and Plasmon to slash debt and refocus on its most profitable brands. With a dividend yield now exceeding 5.18%—nearly double the S&P 500 average—this underappreciated consumer goods giant presents a compelling contrarian play. Let’s dissect why now could be the time to bet on KHC’s turnaround.

The Divestiture Rationale: Cutting Fat to Fuel Growth

Kraft Heinz’s decision to offload the Oscar Mayer and Plasmon brands—announced in 2024—reflects a disciplined focus on core assets. These divestitures target a combined valuation of $3–5 billion, directly addressing its $18.5 billion net debt (down from $31 billion in 2018 but still elevated). With a debt-to-EBITDA ratio of 5.12x—nearly triple the industry median—the company urgently needs to deleverage.

The Oscar Mayer sale, in particular, is a linchpin. A shows progress, but further sales could accelerate this trend. Plasmon, while smaller, adds to the liquidity pool. These moves align with CEO Miguel Patricio’s strategy to prioritize brands with “high consumer relevance and margin leverage,” such as Heinz ketchup and Velveeta cheese.

Dividend Sustainability: A Safety Net in a Weak Sector

Kraft Heinz’s dividend yield of 5.74% (as of May 2025) towers over peers like General Mills (GIS, 4.38%) and PepsiCo (PEP, 4.1%). Critics argue its 142.9% payout ratio—far exceeding the sector’s 52.4% average—is unsustainable. However, the dividend’s durability hinges on two factors:
1. Divestiture proceeds: Proceeds from asset sales could reduce debt, easing pressure on cash flows.
2. Cost discipline: Organic improvements, like pricing power and margin optimization, underpin earnings stability.

A reveals its yield has surged as its stock price fell by 22% over the past year. This creates a “high-yield trap” for investors: the dividend’s safety improves as proceeds from sales bolster the balance sheet.

Contrarian Case: Why KHC Could Outperform Peers

While the consumer goods sector faces headwinds—slowing sales, inflation, and shifting consumer preferences—KHC’s aggressive restructuring gives it an edge:

1. Valuation Discounts:
2. KHC’s P/E ratio of 12.67 is ~20% below GIS (12.05) and nearly half PEP’s (23.2).

3. Its price-to-sales (P/S) ratio of 1.29 is also more attractive than GIS (1.53) and PEP (2.6).

4. Peer Performance:

5. GIS and PEP have delivered lackluster returns in 2025: GIS is down -12% YTD, while PEP trades near multi-year lows amid margin pressures.

6. KHC’s focus on high-margin, iconic brands (e.g., Heinz, Philadelphia Cream Cheese) offers a better path to profit resilience.

7. Catalyst Potential:

8. The Plasmon sale, expected to close in 2025, could unlock $200–300 million in cash.
9. A successful Oscar Mayer transaction would further reduce leverage, potentially enabling share buybacks or dividend boosts.

Risks and Considerations

• Execution Risk: Delays in divestitures or lower-than-expected valuations could strain liquidity.
• Sector Volatility: Consumer goods stocks remain sensitive to economic downturns and input cost inflation.

Conclusion: A High-Yield, Turnaround Opportunity

Kraft Heinz’s dividend yield, while elevated, is supported by its asset-light future and cost-cutting resolve. With a 5.74% yield and a valuation far below peers, KHC offers a rare blend of income and growth potential in a struggling sector. Investors seeking a contrarian bet on a company poised to emerge leaner and stronger post-restructuring should consider adding KHC now.

The clock is ticking. As KHC sheds non-core assets and focuses on its crown jewels, the stage is set for a turnaround that could reward patient investors with both capital gains and a generous dividend.