Amid economic and geopolitical uncertainty, financial markets have floundered. The S&P 500 index has tumbled about 25% so far in 2022. Yet some high-quality components of the index have not been hurt in one way that is very important to income investors: dividends.
Despite the tough economic environment, Hormel Foods (HRL 0.68%), AbbVie (ABBV -4.52%), and Aflac (AFL 0.14%) each raised their payouts to shareholders over the last 12 months. This activity extended the dividend growth streaks of these three companies to a range of 39 years to 56 years straight. That makes all of them Dividend Aristocrats with at least 25 years of raises under their belts. Let's take a look at why each company appears poised to continue growing its dividend for many more years.
1. Hormel Foods
With 56 consecutive years of payouts growth to its credit, the consumer staple Hormel Foods is a Dividend Aristocrat twice over. This easily meets the 50-year dividend growth track record that is required to be a Dividend King. But I am confident that there are still decades of dividend growth in the company's future.
The company has a wide variety of well-known brands in its portfolio, including the meat-based protein brand Spam, Planter's peanuts, Skippy peanut butter, and the eponymous Hormel. And its recently launched Happy Little Plants brand could end up being a hit among customers following a plant-based diet. The brand offers plant-based foods including pepperoni, sausages, and meatballs.
This explains why analysts are forecasting that Hormel will generate 8.8% annual earnings growth over the next five years. Considering that the company's payout ratio is projected to come in around 56% in 2022, this gives it flexibility to hand out high-single-digit annual dividend raises for at least the next few years. Given that Hormel's 2.3% dividend yield is moderately above the S&P 500 index's 1.8% yield, this would be an attractive dividend growth rate.
And the stock's trailing-12-month (TTM) price-to-sales (P/S) ratio of two is in line with its 10-year median TTM P/S ratio of two. Simply put, Hormel is a quality business with a stock price that looks to be a decent value for income investors.
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2. AbbVie
Including its time as the pharmaceutical division of Abbott Laboratories until its spin-off was completed in 2013, AbbVie is a Dividend King with 50 straight years of dividend growth. And there's reason to believe that dividend growth will persist for quite a few more years.
The company's top-selling drug called Humira is on pace to top $20 billion in revenue in 2022. The patent for this drug will expire in 2023 within the U.S., which is where the vast majority of Humira's revenue is generated. But the good news is that the company's next-generation immunology drugs Skyrizi and Rinvoq are on course to record at least $15 billion in annual combined revenue by 2025.
With nearly 60 other compounds in different stages of clinical development for numerous indications, AbbVie's future beyond Humira is bright. And the company's dividend is well covered, with the payout ratio set to be less than 41% in 2022. Investors can snatch up shares of AbbVie and its 4% dividend yield at a price-to-free-cash-flow (P/FCF) ratio of just 11.3, which is a bit below its median P/FCF ratio of 12.8. This is a reasonably enticing valuation for a company with fundamentals that are as strong as ever.
3. Aflac
Aflac has a 39-year dividend growth streak to its name. As it turns out, selling supplemental health insurance products can quite literally pay dividends to shareholders. With more than 50 million customers in the U.S. and Japan, Aflac is the one of the most trusted insurers in the world.
The company generates profits from collecting more in premiums from customers than it pays out in claims, which is due to savvy claims underwriting. And Aflac also receives investment income from its $121.4 billion investments and cash balance. The company's investment income should grow from here with interest rates rising around the world.
Aflac's 2.8% dividend yield seems to be safe. This is supported by the fact that the payout ratio is going to clock in at less than 30% in 2022. Best of all, shares of Aflac can be purchased at a fair valuation. The company's price-to-book (P/B) ratio of 1.4 is in line with its 10-year median P/B ratio of 1.4.
