Sometimes dividend investors focus on yield without giving dividend growth enough weight in their investment decisions. But keeping up with the ravages of inflation is just as important as maximizing current income. This is why it pays to add some lower-yielding, but higher-dividend-growth, investments to your portfolio -- like Texas Instruments (TXN 5.64%) and Hormel Foods (HRL 1.31%). Both are trading with historically high yields today, so it could be a great time to double down on these two stocks.
This chipmaker's doing just fine
The global chip sector went from an upturn in which demand outstripped supply to an industry downturn in which supply is above demand. Global chip giant Texas Instruments has been caught up in the fallout, with its nearly 2.9% dividend yield near the high end of its historical range. That suggests this stock is cheap today.
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That said, the dividend has been increased annually for 20 consecutive years, and the annualized rate of increase over the past decade was a robust 20%. Those are both very attractive dividend stats. But what about that industry downturn? The company's fourth-quarter 2022 revenues and earnings beat Wall Street consensus estimates, so it appears to be holding up fairly well.
Meanwhile, the company is using the downturn to build new chip plants. This is not a small capital investment, with management planning to spend roughly $3.5 billion a year through 2025. However, these outlays will position Texas Instruments to come out of the cyclical chip industry's current downturn a stronger company. This is the type of story that long-term dividend investors should be happy to invest in.
The pain from inflation is real
Hormel Foods operates in the consumer staples sector, selling name brand products like SPAM, Skippy, Wholly Guacamole, and Planters. Inflation has been a major headwind in the sector, putting material pressure on the company's margins. Management noted in the company's recent earnings call that the price hikes it has put in place haven't been enough to keep pace with its rising costs. More price hikes are in the cards as the year progresses.
Then there's the avian flu, which is limiting the company's ability to produce products in its Jennie-O Turkey business. The illness has been particularly bad of late and has lingered longer than management would like. It will take time to work through the problem, and there's little Hormel can do to fix this. Nature will have to take its course.
Management is also working on inventory levels. When the coronavirus became a pandemic in 2020, there were supply chain disruptions that left store shelves empty. Like many other companies, Hormel ramped up production to keep products on shelves. Now, however, demand has normalized and the food maker has been left with extra inventory that it has to sell off.
As if that weren't enough, Hormel's latest acquisition, Planters, has seen a growth slowdown. That said, management knows that it bought a brand that hadn't seen adequate investment under its previous owners. While Hormel is comfortable that the brand is still in turnaround mode, that doesn't change the near-term performance drag that Planters is causing.
With all those negatives, it shouldn't be too shocking that the stock's 2.5% dividend yield is near its historical highs. And yet, this Dividend King has increased its dividend at a 13% annualized clip over the past decade. Given the strong dividend history, long-term investors might want to give management the benefit of the doubt. When you step back, all of the above problems, though many, are surmountable.
Now's the time to act
Good companies don't go on sale very often, and when they do, there's normally a reason. Texas Instruments and Hormel are good companies with impressive dividend histories. Yes, they are both facing headwinds, a lot of headwinds in the case of Hormel. But if you think in decades and not days, their rapid historical dividend growth and high yields suggest that now is the time to jump in with both feet.
