You can't predict the future, but the past can be used as a tool to make educated guesses about what's to come. This is why investors will want to take a close look at this pair of highly successful, though perhaps a little boring, dividend payers. Both have proven their ability to navigate hard times and good ones while rewarding investors with a rising income stream along the way. Here's a quick look at what you need to know.
1. Brands are its heart and soul
The first name up is Hormel Foods (HRL 0.10%). The food maker's dividend yield is roughly 2.3% today. Before you protest that this is kind of low, note that the S&P 500 index is offering just 1.3%. More important, however, that yield is toward the high end of Hormel's historical yield range, suggesting it may be trading at bargain prices right now. And, backing that dividend up is an over 50-year history of annual dividend increases, making the company a Dividend King -- an even more exclusive club than the Dividend Aristocrats.
So Hormel looks relatively cheap, historically speaking, and has proven it can handle the inherent ups and downs of the economic cycle. The company happens to own an incredible collection of industry-leading brands from its namesake Hormel label to SPAM to Wholly Guacamole to recently acquired Planters.
Hormel's strength lies in its ability to innovate and expand its brands. Strong ties with the grocery sector are a huge help, as the company can get the valuable shelf space needed to take new products mainstream. That said, Hormel also operates in other distribution segments, including food service and, thanks to Planters, convenience stores. The company is working to increase its international reach as well. It has a long history in China, where it has a SPAM factory, and has been working to break into the South American market.
All of these positive corporate efforts sound expensive, from investing in research and development to buying new brands to building out foreign operations. It's therefore notable that Hormel has a long history of being fiscally conservative. It just closed the Planters deal, so debt is high today. But the historical path has always been to pay off acquisition-related debt before going back to the market for more big deals. And, frankly, even Hormel's current debt-to-equity ratio of 0.5 times isn't particularly outlandish.
But there's one dividend highlight that hasn't been covered yet. Hormel's average annualized dividend growth over the past decade was a heady 15%. It's been slower than that recently, but when you boil it all down, Hormel is a dividend growth stock that looks very attractive today. And its stock price is well under $100.
2. Big yield, big diversification
The next name up, real estate investment trust W.P. Carey (WPC 1.37%), has a generous dividend yield of 5.3%. Not only is that well in excess of the broader market, but it's also more than twice the 2.3% on offer from the average REIT, using Vanguard Real Estate Index ETF as a proxy. And W.P. Carey has increased its dividend every year since going public in 1998. It should earn the Dividend Aristocrat moniker very soon.
The REIT operates a sizable net lease portfolio, which means it owns single tenant properties for which the lessees are responsible for most of the operating costs. This is generally considered a low-risk approach to being a landlord. However, W.P. Carey doesn't stop there; it also has one of the most diversified portfolios in the REIT sector. Not only does it spread its portfolio across the industrial (25% of rents), warehouse (23%), office (21%), retail (18%), and self storage (5%) sectors, but it also gets a whopping 38% of its rents from outside the United States (mostly Europe). You know diversification is good for your portfolio; W.P. Carey's track record since going public shows it's been a boon for the company, too.
What's particularly interesting about all of this is that W.P. Carey is built from the ground up to be opportunistic in how it invests. A lot of REITs focus on just one sector or region; W.P. Carey can put money to work wherever it sees the best opportunities, which gives it an edge over competitors that are stuck in just one category. For example, fairly early in the 2020 downturn, this REIT announced plans to invest in industrial and warehouse assets, which were seeing increasing demand due to the coronavirus pandemic. Note, too, that it increased its dividend each quarter in 2020, a tangible show of strength.
W.P. Carey, with its sub-$100 share price, doesn't offer the same dividend growth as Hormel, but its fat yield is extremely attractive. Put the two companies together, and they are a powerful mix of yield and growth.
Time for a deep dive
If you are looking to add some stocks to your portfolio today, Hormel and W.P. Carey should be high on your list. They have both proven themselves to be reliable dividend payers over time, and they each have a business model that suggests they can continue to succeed. They are the kinds of stocks that you buy and hold forever.