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Hormel Foods Hikes Dividend to 12 Percent

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Piotr Trojanowski| Dreamstime.com

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Wednesday, 21 November 2018 11:45 AM Current | Bio | Archive

Investors looking for high-quality dividend growth stocks should take a closer look at the companies with the longest track records of raising dividends over time.

The most elite group of dividend growth stocks is the Dividend Kings, an exclusive group of just 26 stocks with 50+ consecutive years of dividend increases.

Hormel Foods Corporation (HRL) is a Dividend King, and recently increased its dividend yet again. The company announced a 12% dividend increase on November 19.

Hormel has an incredibly long streak of steady dividends, and regular dividend growth. It has paid a regular quarterly dividend to shareholders without interruption since 1928, and has now raised the dividend each year for 53 years in a row.

Hormel’s impressive dividend history is the result of a strong product portfolio, competitive advantages, and high earnings growth over time. For long-term buy and hold investors, Hormel is a top dividend growth stock in the food industry.

Business Overview And Recent Events

Hormel is a food manufacturer with annual sales above $9 billion. It has a diverse product portfolio. Some of its major brands include Skippy, Jennie-O, Spam, Hormel, and Dinty Moore, among others. These brands have propelled Hormel’s growth for many years. For example, from 2007-2017 the company grew sales and earnings-per-share by 4% and 11% each year, respectively.

Mergers and acquisitions have been the biggest contributor to Hormel’s growth over the past few years. Hormel has conducted a number of acquisitions across a broad range of categories to strengthen and further expand its product portfolio. For example, in 2015, Hormel acquired Applegate Farms for $775 million. Applegate produces natural and organic prepared meats, such as deli meat, bacon, and hot dogs. This acquisition gave Hormel a huge position in the growing natural and organics market.

Hormel has also made smaller acquisitions to boost its presence in its core areas. Hormel acquired Fontanini Italian Meats and Sausages, to expand its refrigerated foods, and Ceratti, a branded meats business in Brazil. In addition, Hormel acquired Columbus Manufacturing, a premium deli meat and salami manufacturer.

More recently, on November 20 Hormel announced record earnings-per-share for both the fiscal fourth quarter and fiscal year. Earnings-per-share grew 17% for the quarter and 18% for the year. Net sales increased 1% for the quarter and 4% for the year, driven by acquisitions. Looking ahead, Hormel expects fiscal 2019 earnings-per-share to increase by 13%-22%.

The Refrigerated Foods operating segment led the way in the most recent quarter, with 6% net sales growth and 25% segment profit growth. Growth was due to strong sales of Hormel pepperoni, Hormel Natural Choice products, Applegate, and Austin Blues barbeque products, as well as the benefits of the Columbus and Fontanini acquisitions.

A Top Dividend Growth Stock In The Food Industry

Hormel announced a new quarterly dividend rate of $0.21 per share, a 12% increase from the previous quarterly payout. On an annualized basis, Hormel’s dividend payout of $0.84 per share represents a forward yield of 1.9%. This is roughly on-par with the broader market index, as evidenced by the average S&P 500 Index yield of 2%. Hormel is not classified as a high-yield stock. There are a number of large food manufacturers such as General Mills, Kraft-Heinz, Kellogg, and others with higher dividend yields than Hormel. However, few can match Hormel’s track record of dividend growth.

Not only has Hormel raised its dividend each year for over five decades running, but it also raises its dividend at a high rate. The recent dividend increase continues a long streak of 10%+ annual raises. For example, from 2007-2017 Hormel increased its dividend by 16% per year. Hormel’s current yield might not have high appeal for investors who desire income today, such as retirees. But Hormel is much more attractive for dividend growth investors more interested in building dividend income over the long term.

The Bottom Line

Hormel has its roots in Spam and Dinty Moore, but the company has proved its ability to adapt to changing consumer preferences. Hormel’s core product line will continue to generate strong cash flow, while the company’s future growth will be fueled by new categories such as natural and organic foods. Hormel is very likely to continue its high dividend growth rate, which makes Hormel stock extremely appealing for long-term dividend growth investors.

Ben Reynolds is CEO of Sure Dividend. Sure Dividend helps individual investors build high quality dividend growth stock portfolios for the long run.
 

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BenReynolds
Hormel is very likely to continue its high dividend growth rate, which makes Hormel stock extremely appealing for long-term dividend growth investors.
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Wednesday, 21 November 2018 11:45 AM
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