How to Turn Boring Ketchup into a Profit Machine

By TradeSmith Editorial Staff

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My friend and TradeSmith Senior Analyst Mike Burnick recently shared a report on three “Money Never Sleeps Stocks,” and what he said about Kraft Heinz Co. (KHC) really struck me.

“Every minute of every hour of every day, someone, somewhere, is reaching for a bottle of Heinz Ketchup, probably in a diner someplace to improve the taste of the meatloaf. Or some stressed-out parent somewhere in the world is making Kraft Mac and Cheese to feed the kids and keep them quiet for a while. The same is true for the hundreds of other products KHC sells around the world. And every box of Kraft Mac and Cheese or bottle of Heinz Ketchup sold provides the company with more cash flow.“

While I’m getting ready for bed in Maryland, someone in Hawaii could be just getting off work and racing to the grocery store to buy some last-minute things for dinner that, there’s a good chance, are made by Kraft Heinz.

I love how Mike presented it, with the company passing on some of that money it is making at all hours of the day as dividend payments.

And I started to think more about those dividend payouts.

Generating income from KHC is great, and focusing on high-quality dividend stocks that, as Mike says, “pay you now,” is something that we’ve been stressing the importance of in TradeSmith Daily.

But there’s something else shareholders can do with that dividend rather than just collect it as soon as it is paid out: They can reinvest it to own more shares of Kraft Heinz and other dividend-paying stocks.

It’s a great strategy if you don’t want to put additional money into your brokerage account to buy more shares of a stock; you can just use the dividend you are going to receive to buy more shares. And you can think of it as putting the dividend “to work.”

Let me share a little bit more about this strategy.

Putting Dividends to Work

You can enroll in something called a dividend reinvestment program (DRIP).

For anyone who has done this in the past, it should be a lot easier than you remember. Previously, you may have called the company directly, filled out some paperwork, and sent the paperwork back to the company to enroll in a DRIP.

Today, enrolling in a DRIP is offered right in your brokerage account, and it’s as simple as clicking a button and saying you want to enroll in a DRIP.

And it doesn’t matter if the dividend payout is less or more than the current stock price — you will receive fractional shares.

Let’s say you own 10 shares of KHC, which would give you a $16 dividend payout. If the stock price is trading at $37.23, that $16 payout reinvested would give you 0.42 of an additional share that you didn’t own before.

If you own 1,000 shares, you would receive a dividend payout of $1,600. If the stock price is trading at $37.23, that $1,600 payout reinvested would give you 42.97 shares that you didn’t own before.

Again, you aren’t adding new money into your brokerage account to get these shares; you are using your dividends to buy these shares through the DRIP.

Over time, you accumulate even more shares, which increases the dividend amount you receive.

Best of all, you can turn the DRIP off and just start receiving dividends. It’s just another way to remove emotion from investing. Make sure to check out the special note below for even more strategies that can be used in a bear market.