Hormel Foods (HRL -0.17%) is offering investors a historically high 2.1% dividend yield today -- and it's backed by a business with such iconic brands as SPAM, Planters, and Dinty Moore that have supported over five decades' worth of annual dividend increases.
But there's also one not-so-small factor behind the company's long-term success that many investors may not know. If you own Hormel or are considering owning it, here's one thing you might like to learn today.
Who owns Hormel?
When companies sell stock, the public broadly speaking is the majority owner. That said, big investors like pension funds, private equity shops, and asset managers often end up being the largest shareholders. That means they generally wield a huge amount of sway over companies -- often with good intentions. For example, Blackrock (BLK 0.61%) has made ESG investing a material focus of its exchange-traded funds (ETFs).
Then there are activist investors who are determined to make major changes in a company's direction. For instance, Nelson Peltz of Trian Partners engaged in a huge proxy fight with Procter & Gamble a few years back. When the dust settled, the company ended up putting him on the board (although he has since stepped down).
In both of these situations, big investors are pushing for corporate changes that may or may not be aligned with what smaller investors really want -- and could sometimes result in bad investment decisions.
But large investors will have a much harder, if not impossible, time doing so at Hormel. That's because of the Hormel Foundation, a non-profit organization that was set up in 1941 by company founder George Hormel and his son, Jay. Together with associated entities, the foundation owns 48% of Hormel's shares, making it by far the company's largest shareholder. One of the three stated goals of the Hormel Foundation is to "preserve the independence of the Hormel Foods Corporation."
What this means for investors
What this means is that Hormel is protected from the influence of large investors other than the Hormel Foundation -- and can go about its business without fear of being pushed toward short-term goals over more appropriate long-term ones. Don't underestimate the value of this independence as it means the company can nurture business divisions that are drags over the near term but that present material long-term opportunity.
A good example of this today might be management's ongoing commitment to the Jennie-O turkey business. Turkey is a key lean protein that complements Hormel's broader protein focus. During its fiscal fourth-quarter 2021 earnings call, the company outlined plans to streamline the operation in an effort to minimize the commodity swings that have been a major headwind for several years .
For the company, focusing on value-added turkey products makes long-term sense and fits with its general business direction. But outside investors might well have pushed for a sale of this business by now if it weren't for the Hormel Foundation.
That said, why should investors feel confident that the Hormel Foundation is aligned with their interests? The answer is pretty simple and boils down to the other two goals of the Hormel Foundation: "Support the Austin, Minnesota, community and area" and "provide for the financial welfare of family heirs for the duration established by family trusts." The Foundation achieves these goals by collecting and spending the dividends that Hormel Foods provides to all shareholders.
In other words, the Hormel Foundation has a vested interest in making sure that Hormel Foods has a secure, growing dividend. That's pretty much what every investor wants, too. And the way to achieve this is by supporting solid, long-term plans across market cycles. This is, again, exactly what every long-term investor should be happy to see take place.
Hormel is hardly perfect, and some might argue that the Hormel Foundation stops investors from pushing for change that might increase its valuation over the near term. However, 55 years of annual dividend increases -- including 15% annualized dividend growth in the past decade alone -- suggest that investors are benefiting from the independence offered by the Hormel Foundation's massive ownership stake.
To be fair, Hormel probably won't excite you very much, but it should keep plodding along with a healthy, long-term focus for as long as the Hormel Foundation remains in the picture. That's a good thing even if nobody is talking about why this food maker can blaze a unique path.