Up to date on September twentieth, 2023 by Bob Ciura
The Dividend Kings are one of the best shares out there for returning money to shareholders over time. To make the record, an organization has to extend its per-share dividend for not less than 50 consecutive years.
Given this extraordinarily excessive bar, solely the companies that may present stability by every kind of financial situations make the minimize.
Certainly, simply 50 corporations qualify as Dividend Kings. You may see all 50 Dividend Kings right here.
You may as well obtain an Excel spreadsheet with the total record of Dividend Kings (plus metrics that matter, comparable to price-to-earnings ratios and dividend yields) by clicking on the hyperlink under:
Hormel Meals Company (HRL) is a processed meals producer that competes in a number of grocery classes. The corporate was based 131 years in the past and has managed to extend its dividend for the previous 57 years.
Hormel is a famously recession-resistant firm carried out comparatively effectively in the course of the coronavirus pandemic.
On this article, we’ll check out Hormel’s fundamentals to judge the attractiveness of the inventory.
Enterprise Overview
Hormel was based in 1891. Within the years since, it has grown by natural growth and an in depth historical past of acquisitions and divestitures.
At the moment, the corporate produces over $12 billion in annual income, with its core merchandise remaining true to its historical past as a meat processor.
Hormel’s attain is expansive, with distribution in additional than 80 nations throughout the globe.
Supply: Investor Presentation
Hormel has a staggering 40 product classes the place its manufacturers are first or second by way of market share.
The corporate has centered on constructing scale and model recognition in all of its classes, which has paid off over time. This type of dominance is troublesome to seek out in any business, however Hormel has managed to do it.
Hormel’s merchandise are organized in 4 classes: Refrigerated Meals, Heart Retailer Meals, Jennie-O Turkey, and Worldwide.
The Jennie-O model sells turkey merchandise, with equal elements of income going to grocery and meals service.
Development Prospects
We presently anticipate Hormel to supply 6% annual earnings-per-share development for the foreseeable future because it continues to remake its portfolio to speed up development.
Hormel is executing six strategic priorities to push development. And every strategic precedence can be geared toward particular manufacturers inside the firm. Gross sales development must be the first driver of earnings-per-share growth. Margins are additionally a key focus in 2023 and past, given the present value of inflation.
As well as, Hormel has been busy remaking its portfolio by acquisitions and divestitures lately.
For instance, in 2021, Hormel introduced the acquisition of the Planters snack nuts enterprise from Kraft-Heinz (KHC) for $3.35 billion. The acquisition has boosted Hormel’s development.
Supply: Investor Presentation
Hormel posted third quarter earnings on August thirty first, 2023. Adjusted earnings-per-share of $0.40 missed estimates by one cent. Income fell 2.3% year-over-year to $2.96 billion, which missed consensus by $90 million. Retail section quantity was up 1%, whereas internet gross sales fell 2%, and section revenue was down 7%.
Foodservice quantity was up 2%, whereas internet gross sales fell 3%, however section revenue rose 14%. The worldwide section noticed quantity decline 10%, whereas internet gross sales fell 6%, and section revenue was minimize in half. The corporate stated quantity development was pushed by stronger outcomes from turkey, broad demand for meals service merchandise, and power in SPAM, Black Label, Planters, and pepperoni.
Aggressive Benefits & Recession Efficiency
Hormel’s aggressive benefit is its roughly 40 merchandise which can be #1 or #2 by way of market share of their respective classes. It competes very effectively in classes with secure demand and repeats purchases, because it solely sells consumables.
Its distribution community that will get merchandise to greater than 80 nations means Hormel’s income stream could be very effectively diversified.
Hormel’s recession document is pretty sturdy, having grown its earnings throughout and after the Nice Recession:
2007 earnings-per-share of $0.54
2008 earnings-per-share of $0.52 (3.7% lower)
2009 earnings-per-share of $0.63 (21.1% improve)
2010 earnings-per-share of $0.76 (20.6% improve)
Hormel noticed a small decline in the course of the preliminary downturn in the course of the Nice Recession however posted big earnings development in 2009 and 2010.
The coronavirus pandemic was comparable, as Hormel reaped the advantage of pantry-stocking worldwide.
Due to this fact, Hormel stays a good selection for buyers searching for defensive shares for his or her dividend portfolio.
Valuation & Anticipated Returns
We anticipate Hormel will generate adjusted earnings-per-share of $1.65 for the present 12 months. Due to this fact, the inventory trades for a price-to-earnings ratio of 23.5, which is above our truthful worth P/E of twenty-two.0.
That works out to be a modest headwind to whole returns over the following 5 years because the inventory stays costly. Given Hormel’s struggles with quantity and margins, we consider buyers are more likely to cut back the earnings a number of than broaden it additional.
If the P/E declines from 23.5 to 22.0 over the following 5 years, annual shareholder returns can be decreased by 1.3% per 12 months.
On a optimistic observe, anticipated earnings-per-share development of 4.0% and the two.8% dividend yield will add to shareholder returns.
Total, we see the potential for annual returns of 5.5% per 12 months for Hormel inventory. It is a adequate return to keep up a maintain ranking on Hormel, particularly because of the firm’s constant dividend development.
Certainly, the dividend could be very protected, as Hormel has a projected dividend payout ratio of 57% for 2023. Due to this fact, the corporate shouldn’t have a lot bother rising the dividend every year going ahead.
Ultimate Ideas
Hormel’s monitor document of earnings stability and dividend development are troublesome to match. The corporate has confirmed it may well survive and thrive in a wide range of situations, together with maybe probably the most difficult situations the financial system has ever confronted with the coronavirus disaster.
Nonetheless, the inventory seems to be overvalued proper now, which limits its whole return potential. We presently price the inventory as a maintain for dividend development buyers, however it’s not a purchase proper now attributable to valuation.
The next articles include shares with very lengthy dividend or company histories, ripe for choice for dividend development buyers:
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