Some of the world’s best investors stick to dividend portfolios. They know that a steady stream of income is a top wealth building strategy. And finding the best deals is vital. So today, we’re going to review another one of the best dividend stocks around. Let’s take a look at Hormel Foods’s dividend history and safety…
Business Overview and Highlights
Hormel Foods (NYSE: HRL) is an American food products company. The company used to focus on the packaging and selling of meats, but since has expanded to a wider range of foods. The $21 business is based out of Minnesota. It employs 20,100 thousand people. Last year Hormel Foods pulled in $9.5 billion in sales and that breaks down to $475 thousand per employee.
The company operates within the consumer sector and maintains a solid credit rating (A) from the S&P. This allows Hormel Foods to issue cheap debt to grow the business, finance other initiatives, and increase their dividend.
On May 21, 2019, Hormel Foods’ board of directors declared a quarterly dividend of $0.21 per share. The dividend will be paid August 15 to shareholders of record at the close of business on July 15.
Hormel Foods’ 10-Year Dividend History
The company paid investors $0.19 per share a decade ago. Over the last 10 years, the dividend has climbed to $0.75. That’s a 295% increase and you can see the annual changes below…
The compound annual growth is 14.7% over 10 years… but over the last year, the dividend climbed 10.3%. The slowdown in dividend growth isn’t a great sign. Although, Hormel Foods still might be a good income investment. Let’s take a look at the yield…
Current Yield vs. 10-Year Average
Hormel Foods’s long history of paying dividends makes it one of the best dividend stocks around. This also makes the dividend yield a great indicator of value. A higher yield is generally better for buyers. Sustainability is also vital and we’ll look at that soon.
The dividend yield comes in at 2.14% and that’s above the 10-year average of 2.05%. The chart below shows the dividend yield over the last 10 years…
The higher yield shows that investors have bid down the company’s market value. They might be expecting higher growth and payouts. But more often than not, the dividend yield is mean reverting with share price changes.
Improved Dividend Safety Check
Many investors look at the payout ratio to determine dividend safety. They look at the dividend per share divided by the net income per share. So, a payout ratio of 60% would mean that every $1 Hormel Foods earns, it pays investors $0.60.
The payout ratio is a good indicator of dividend safety… but accountants can manipulate net income. They adjust for goodwill and other non-cash items. Free cash flow is a better metric.
Here’s Hormel Foods payout ratio based on free cash flow over the last 10 years…
The ratio is fairly steady over the last 10 years and the trend is up. The last year shows a payout ratio of 46.7%. This gives wiggle room for Hormel Foods’s board of directors to raise the dividend.
If you’re interested in seeing more dividend research, please comment below. You can also check out our free DRIP calculator. With it, you can uncover the power of dividend reinvestment growth.
Also, if you are planning your retirement make sure to use our retirement readiness calculator. It will help you find out if you’re on track for a wealthy retirement.
Good investing,
Robert
