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The board of directors of Kraft Foods Group, Inc. (KRFT - Analyst Report) recently announced a 5% increase in the consumer food company’s dividend; its first dividend hike after becoming an independent company.

Kraft Foods Group was spun off from Mondelez International, Inc. (MDLZ - Analyst Report) into a separate company on Oct 1, 2012, and now consists of the North American grocery business of the old Kraft Foods.

The quarterly dividend was increased from 50 cents to 52.5 cents per common share, equivalent to an annual dividend of $2.14 per share. The new dividend will yield almost 4.0% annually. The increased quarterly dividend will be payable on Oct. 25, 2013 to shareholders of record as of Oct. 11, 2013.

In the past, Kraft concentrated largely on improving revenues and margins, which led to inconsistent cash returns to shareholders. However, the new Kraft aims to balance growth and reinvestments, going ahead. Kraft focuses on cash generation and delivering consistent shareholder returns through strong financial discipline. The company aims to generate significant cash and is targeting to “put dollars in shareholders' pockets, not margins”. Free cash flow is expected to be at least 85% of the net income in the long term which will be used mainly to pay steady and incremental dividends targeted to grow consistently in the mid single-digit range. The latest dividend increase rate of 5% was in line with management's expectations of a mid single-digit increase.

Other Stocks to Consider

Kraft carries a Zacks Rank #3 (Hold). Other stocks in the food industry that are currently performing well and have a bright outlook include Pinnacle Foods Inc. (PF - Snapshot Report)and Green Mountain Coffee Roasters, Inc(GMCR - Analyst Report). Both the companies carry a Zacks Rank #1 (Strong Buy).

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