Elevated inflation readings and the introduction of interest rate hikes to get that inflation under control have led some investors to panic in 2022 and exacerbate a market sell-off. That rising concern helped pull the S&P 500 index down nearly 18% year to date and also lead to increased discussions about a possible recession. 

Some stocks have fared much worse than the broader markets, but some are holding up quite well considering the macroeconomic headwinds that are blowing. When market fears elevate, investors tend to reallocate capital into recession-resistant sectors like consumer staples. That reallocation has helped stocks like Dividend King Hormel Foods (HRL -1.17%) to outperform the broader market. Hormel's stock is down just 1.4% year to date. 

Given all the talk about recession and the fact that Hormel seems to be outperforming, should income investors buy the stock at its current share price? Let's pull up a plate and see what Hormel stock is serving.

A person shops at a grocery store.

Image source: Getty Images.

Hormel consistently outperforms analyst estimates

Hormel reported Q2 earnings results (for the quarter ended May 1) in early June. The company topped analysts' consensus estimates for net sales and diluted earnings per share (EPS). The company posted record net sales of $3.1 billion, up 18.8% over the year-ago period. It was the sixth straight quarter of record sales. Hormel's net sales slightly surpassed analysts' estimate of $3.1 billion for the quarter. It was the ninth time out of the past 10 quarters that Hormel topped analyst estimates for net sales.

Hormel's overall volumes in Q2 declined 2% year over year. Factoring out the acquisition of its Planters snack nuts business in June 2021, the company's organic volume was down 8% over the year-ago period. Its Jennie-O Turkey Store segment posted a 1% volume decline in the quarter while its refrigerated foods and international and other segments produced double-digit volume declines. These were partially offset by a 19% growth rate in grocery products volume led by the completion of the Planters acquisition.

Basically, A growing mix of sales in its foodservice businesses and strategic price increases explain how the company's net sales soared higher during Q2. Even adjusting for the Planters acquisition, Hormel put up 10% organic net sales growth for the quarter.

The company generated $0.48 in diluted EPS in the second quarter, which is equivalent to a 14.3% year-over-year growth rate. This eclipsed the analyst diluted EPS projection of $0.46 for the quarter and marked the seventh quarter out of the last 10 quarters that Hormel topped estimates. As a result of higher commodity prices, the company's net margin declined 30 basis points over the year-ago period to 8.4% in Q2. Along with a 0.5% uptick in the weighted-average share count, this is why Hormel's earnings growth came in at less than net sales growth during the quarter. 

The pricing power resulting from the company's more than 50 iconic brands (including Hormel, Skippy, Dinty Moore, Herdez, and Spam) is expected to result in healthy future earnings growth. This is why analysts believe that Hormel Foods will deliver 8.6% annual earnings growth in each of the next five years. 

A market-topping dividend with plenty of growth left

The S&P 500 index's average dividend yield is currently 1.6%, which means Hormel's 2.2% dividend yield could be appealing to income investors. And the company's dividend is quite safe as evidenced by the Dividend King status and the dividend payout ratio, which is expected to come in around 53% for this year. This gives the company plenty of flexibility to grow its dividend in line with earnings for the foreseeable future. High-single-digit annual dividend growth is an attractive proposition when paired with a 2%-plus dividend yield. 

The valuation is reasonable

Hormel Foods is a fundamentally strong business. The trailing-12-month (TTM) price-to-sales (P/S) ratio of 2.1 is just above the 10-year median P/S ratio of 2. For a company whose fundamentals are arguably better now than they have been in recent years, this is hardly an excessive valuation. That's because Hormel Foods' 8.6% annual earnings growth outlook for the medium term is slightly above the 8% annual growth rate that it turned out over the last five years. For long-term investors, now is not a bad time to buy into this steady-growing stock.