The stock market does not go in a single direction; it vacillates between rising and falling in unpredictable ways. That's an important fact investors need to remember when Wall Street slides into a bear market -- because the trend will eventually reverse. In fact, when you step back, bear markets often offer the best entry points into great companies. Hormel Foods (HRL) and Medtronic (MDT 0.89%) are great examples of this opportunity today.
I'm still making money
I first bought food maker Hormel when its dividend yield was a touch over 2%. The yield today is roughly 2.3%, about where it was when I started buying in 2017 thanks to an 18% price decline from the stock's early 2022 highs. And yet I'm still soundly in the green on my investment. There's no trick here; it's just simple math.
For starters, Hormel's current yield level is toward the high end of the company's historical yield range. That suggests the price is fairly attractive right now since yield ranges often remain fairly steady over time. What's important here is that Hormel has increased its dividend by roughly 50% since I first bought the stock. In order for the yield range, which offers a rough gauge of valuation levels, to remain in place, the stock price has to go up to account for the higher dividend payout.
The last few years weren't an anomaly. Hormel has increased its dividend annually for more than five decades, making it a Dividend King. Over the past decade, the annualized increase was a generous 14% or so. And given Hormel's financially strong business selling food items that we all eat on a regular basis, there's no reason to doubt that it will keep this dividend trend going. Yes, inflation is high and there's the avian flu to worry about, but these are likely to be short-term headwinds. If you can stomach going against the grain, Hormel could be a good place to put some cash today so you can add some more passive income to your portfolio.
A little outside my comfort zone
A name I just recently bought was Medtronic, which is offering a dividend yield just above 3%. Like Hormel, that's historically high for this industry-leading medical devices specialist. The stock, for reference, is down over 30% from the highs it reached in mid to late 2021. There's a real risk that it will go down further and I hit the buy bottom a little early. I'm OK with that, though, because of the dividend.
HRL Dividend Yield data by YCharts.
Medtronic has increased its dividend annually for over four decades, making it a Dividend Aristocrat. The average increase over the past decade was roughly 10%. The story is basically the same as the one that got me into Hormel. I expect Medtronic's stock to trend generally higher over the long term along with the fast-rising dividend, even though I'm aware that there will be short-term swings.
To be fair, I understand making and selling products like SPAM, one of Hormel's premier brands, a lot better than Medtronic's focus on things like pacemakers and robotic surgery machines. However, I can see that Medtronic has a diversified portfolio of products and a long history of success behind it, highlighted by that incredible string of dividend hikes.
I'm willing to bet that management can figure out the headwinds it is facing right now, including new product delays and a recall tied to an older product. The company has, in fact, dealt with adversity over the past forty years or so. But the stock doesn't get this attractive for dividend-focused investors very often, so you have to be willing to step in now even though it could be emotionally difficult (and perhaps a little early). Otherwise, you risk missing the cash-generating opportunity here.
Don't wait too long
If you have $1,000 and are thinking you should do something with it, other than hiding it in a mattress, then take a close look at Hormel and Medtronic. They are vastly different companies, but the theme is the same. Their yields are high, backed by long strings of generous annual dividend increases, suggesting that they are relatively cheap, historically speaking. And don't let the bear market stop you -- great companies like these don't go on sale very often. That's why a major market downturn is usually the best opportunity to add companies like these to your portfolio.
