Dividend Aristocrats are an exclusive group of companies that have demonstrated extraordinary financial strength over time by raising dividends during the last 25 consecutive years or more. Dividend Aristocrats in the discretionary food and drinks sector include widely recognized names such as Coca-Cola (NYSE:KO) and PepsiCo (NYSE:PEP). Hershey (NYSE:HSY) is not included in that select group.

While the company missed a dividend increase in 2009, that was mostly because of prudence, because the business remained healthy and profitable during that year. Besides, when evaluating dividend soundness on a forward-looking basis, Hershey is just as reliable as companies like Coca-Cola and PepsiCo. Is Hershey an undercover Dividend Aristocrat?

The devil is in the details
Quantitative rules can be very useful and valuable when it comes to selecting investments based on objective factors. A solid track record of dividend growth has proven to be one of the best ways to identify high-quality companies with superior long-term prospects. For this reason, many investors hold Dividend Aristocrats in high regard.

However, it's also important to do your homework and dig below the surface when analyzing investment alternatives. Although Hershey is not included among Dividend Aristocrats, the company has enough fundamental strength to be considered as solid as any of the companies in that group.

Hershey has consistently raised its dividend in almost every year since 1988, except for 2009, when management decided to take the prudent road and preserve financial resources due to economic uncertainty during the financial crisis and the Great Recession.

HSY Dividend Chart

HSY Dividend data by YCharts.

In retrospect, this looks like an excessively cautious decision, especially because the company had more than enough financial strength to continue increasing dividends at the time.

As we can see in the following financial table from the company's 2009 annual report, Hershey delivered both growing sales and profits during 2008 and 2009, and the same goes for cash flows and other relevant metrics. Hershey's ability to distribute dividends was clearly not jeopardized during that period.

Hsy Financial

Source: Hershey.

Hershey vs. Coca-Cola and PepsiCo
There were valid reasons to be concerned about the economic landscape at the time, and many other companies decided to be conservative by raising dividends at a much slower rate than in previous years.

Coca-Cola raised its payments by 7.9% during 2009, a considerably smaller increase than the 11.8% dividend hike the company announced in the first quarter of 2008. The same goes for PepsiCo; the company increased dividend payments by 5.8% in 2009, versus a much tastier increase of 13.3% announced in 2008. 

Besides, when considering the complete five-year period from 2008 to 2013, Hershey has outperformed both Coca-Cola and PepsiCo in terms of dividend growth; so we could say that the company has more than compensated investors for the missed dividend increase in 2009.

HSY Dividend Chart

HSY Dividend data by YCharts.

On a forward-looking basis, Hershey's dividend looks as sustainable as cash flow distributions from PepsiCo and Coca-Cola. Hershey has a dividend payout ratio around 51.2% of earnings, versus 60.9% for Coca-Cola and 51.3% for PepsiCo, according to data from Morningstar.

Foolish takeaway
Hershey is not a Dividend Aristocrat, but that is only because management decided to play it safe in 2009, and conserve cash during a historically challenging time for the global economy and the international financial system. The business performed quite strongly during that period, so Hershey had more than enough financial soundness to raise its divided payments.

Hershey has outgrown renowned Dividend Aristocrats such as Coca-Cola and PepsiCo in terms of dividend increases during the 2008 to 2013 period, and it has a safe dividend payout ratio, indicating solid dividend growth prospects in the years ahead. Hershey may not be a Dividend Aristocrat, but that does not make it any less reliable for dividend investors.

Andrés Cardenal has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola and PepsiCo. The Motley Fool owns shares of PepsiCo and has the following options: long January 2016 $37 calls on Coca-Cola and short January 2016 $37 puts on Coca-Cola. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.