When most investors are asked to identify growth stocks, Hormel Foods (HRL 0.96%) probably isn't a name that first pops into their heads. That's actually good news for investors who think outside the box, looking for hidden stock gems. This "boring food maker" has some impressive bona fides when it comes to stock performance.
Let's take a look at why, with its shares down by about 10%, now is a good time to add Hormel to your list of potential growth stocks.
The big growth record
Hormel has increased its dividend annually for an incredible 56 consecutive years, earning it the elite status of Dividend King. That record is something the company can be proud of, and something investors tend to find attractive. The thing is, streaks like that don't happen by accident.
What also doesn't happen often is extended periods of double-digit percentage increases to a dividend. And yet, over the past decade, Hormel management has increased the dividend at an average annual rate of around 13.5%. That's impressive five-plus decades into annual increases.
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Hormel's dividend yield at the current share price is historically high -- around 2.1%. That suggests that the stock is fairly cheap, historically speaking. But over the past decade, the stock's price has steadily marched higher right along with the payouts. To put some numbers on that, management has increased the dividend by roughly 205% over the past decade, while the stock price is up by around 220%. The result is that it has generally maintained its yield within a stable range.
Although inflationary headwinds in 2022 left Hormel -- like all companies in the consumer staples space -- working to protect its margins, that's likely to be a near-term problem, not a long-term one. So its recent share price decline is really best viewed as an opportunity for investors interested in growth and income stocks.
The Hormel difference
There are plenty of other food makers offering generous yields and big growth plans, so how does Hormel stand out?
The company's core strength is in protein, with major businesses selling pork products, turkey, nuts, and nut butters. It owns iconic brands like SPAM, Jennie-O, Columbus, Planters, and Skippy, along with its namesake Hormel offerings. All in all, the company has over 40 brands that are No. 1 or No. 2 in their product categories. While you may not realize it, Hormel is an industry leader across the grocery store. In fact, it might be best to view Hormel as a brand manager rather than a food maker.
Notably, in recent years, the company worked on two fronts to expand its business. The first is internal growth, where it largely focused on introducing innovative new products. For example, the company's Skippy P.B. Bites turned peanut butter into a carry-around snack. Hormel also moved aggressively into charcuterie (several varieties of meats, cheeses, and crackers gathered in a single, easy-to-serve package), which has become an important grocery category. These products may not be exciting, per se, but they have helped to drive growth.
In addition, Hormel uses acquisitions to build out its portfolio. Among its many purchases in recent years are Columbus specialty meats, Planters nuts, and Wholly Guacamole. This push also included brands you've likely never heard of because they are dominant names in non-U.S. markets. Although foreign sales are still a small part of Hormel's business, global expansion is yet another avenue for long-term growth.
Behind the scenes of this innovation-and-acquisition-driven growth push is another important corporate shift. Hormel is transitioning away from commodity products, which tend to experience volatile price swings and moving more toward higher-margin product offerings. Specifically, it's exiting commodity pork and turkey production so that it can focus on name-brand products made with these meats. That should lead to more consistent operating performance over time at higher margins, offering yet another path to growth.
Boring is beautiful
Hormel will never be as exciting as a technology upstart, but this boring Dividend King proved it is a dividend growth machine. And if you add it to your tech stock holdings, you might find you have created a better, more diversified portfolio without having to give up the growth side of the investment equation. With a great history and ample avenues for future growth, the inflation-driven stock price decline at Hormel has opened up an opportunity for growth-minded investors to add a generous and rising dividend to their portfolios.
