When an investor is considering in which companies to invest, they must look at many elements of the company. They should think about the type of industry, the company’s history, if the company has a sound history of payouts, and whether experts are predicting that the company can support decent dividend payouts in the future or not. This will help them to decide whether a company is good for short-term or long-term investment. Equally, it will help an investor to decide whether to bother investing or not. One company that is highly rated by financial experts as a solid long-term dividend stock option is Hormel Foods (NYSE:HRL), and here are some of the reasons why.
Hormel Foods is a food products company that was founded in 1891 and is headquartered in Austin, Minnesota. Originally, this company focused on selling products including Spam and many other packaged meat products. They then diversified their business during the 1980s to offer a wider selection of packaged and refrigerated food brands, Currently, this country sells its products in 80 countries across the globe. Some of the brands that are a part of this company include Columbus Craft Meats, Applegate, Skippy, Jennie-O, and Dinty Moore. The long history of this company is one of its appealing features in terms of investment. They have been in business for more than 128 years, which means they are a well-established brand that is trusted by consumers. The fact that the company has been in business for so long should give investors confidence in the strength of the company. Its history puts it in a strong market position as one of the leaders in the packaged food industry, says The Motley Fool.
Hormel Foods’ diversity is another element of the company that should make it a sound investment. This refers to both the company’s geographical diversity and the diversity of the product range. If sales in one country fall, the company’s revenue is generally sustained by sales in other countries. Likewise, if the sales of one product or brand falls, then it shouldn’t make too much of a dent in the company figures because the cash flow is supported by the sales of the other brands and products. This company has also used a variety of initiatives in recent years to strengthen its position in the food sector. Price cuts have led to increased sales and product innovations have increased the variety of products they produce. Hormel Foods has also used an aggressive acquisitions strategy that has seen them acquire some leading brands, including Ceratti and Fontanini. Adding such brands to their already expansive portfolio will also strengthen their position.
Of course, the history of a company’s dividend payouts is a key consideration for many investors. Hormel Foods is considered a Dividend King because they have delivered dividend hikes for more than 5 years consecutively. In fact, they have now paid out increasing dividends to their investors for 53 consecutive years. It is one of just 13 companies to currently hold the title of Dividend King. This long history of increases is a good sign that this is a solid long-term investment. In the last six months, Hormel Foods has pulled back the share price by 10 percent and delivered an average dividend yield. However, in the last 12 months, they have still delivered a total return of around 17.2 percent. Over a three year period, shareholders have received a total return of 26 percent.
Simply Wall Street highlights that the dividend payout percentage is good in relation to the earnings of the company. They say that if the dividend payouts are too high, then they are often unsustainable in the long-term. Therefore, the fact that the dividends are only 43 percent of Hormel Foods’ earnings is positive. Furthermore, dividends are supported by both cash flow and profits. The revenue growth at Hormel Foods has been, at best, steady in recent years. Between 2012 and 2017, the company saw just 16 percent increase in sales, which is a compound annual growth rate of under four percent. Despite only a steady rise in revenue growth, the company’s earnings have risen sharply. This is because of the cost cuts and their focus on value-added branded food products. However, the company has faced some challenges in recent years, says Dividend Investor. They note that the rise in pork prices following an outbreak of African swine fever and an increase in production costs have posed some problems for many in the food sector.
Despite having to face such challenges, Hormel Foods seems to have ridden the storm and come out on top as they continue to deliver incremental growth and, in the long-term, they are a strong performer. This is partly due to the strong balance sheet, as this helps them to weather difficult periods. Hormel Foods is now positioned well for expansion. The company increased its working capital from $911 million to almost $1.2 billion in the second quarter of 2019. This puts the company in a strong position to fund future capital needs and cover any debt or drops in sales or revenue figures.
Overall, it seems that Hormel Foods is a good option for investors who want a solid long-term dividend stock. The company has a long history, it produces a diverse range of products, and these products are sold across the globe. These are all factors that put Hormel Foods in a strong market position. As a Dividend King, this company also has a strong history of dividend payouts, and the predictions are that this will continue into the future. Hormel growth has put strategies in place to continue expanding and to support steadily increasing revenue figures. The combination of these factors leads financial experts to believe that this is a solid long-term dividend stock that serious investors should consider adding to their portfolio as they will continue to reap the rewards over the next decade.
Written by Bill Vix
Read more posts by Bill Vix