If you are looking at the consumer space and trying to find dividend stocks, three companies you might want to consider are Unilever (UL 1.63%), Hormel Foods (HRL +0.24%), and Realty Income (O 2.95%). Although they are each dealing with very different business backdrops, they all have historically attractive dividend yields. Here's a quick look at each.
1. Unilever's turnaround is starting to show results
Unilever is a global consumer staples giant with products ranging from food (Hellmann's) to soap (Dove) and a whole lot in-between. The current dividend yield is roughly 3.7%, which is toward the high side of the company's historical yield range. That suggests the shares are on the sale rack today as the industry shifts from raising prices (helped along by inflation) to fighting for market share.
UL Dividend Yield data by YCharts.
That said, the bigger story for Unilever is its multiyear turnaround effort. Essentially, the company is attempting to shift toward growth, selling less desirable businesses (such as tea) and buying more growth-oriented brands (like Liquid IV). At the same time, it has been working with activist investor Nelson Peltz to streamline operations and better align performance with pay. (This is the same playbook that Peltz successfully put forward at peer Procter & Gamble (PG 1.12%) while that company was working on a turnaround.) There are early signs of success, including continued solid organic sales growth and improving margins. If you can look past the day-to-day business variability and see the underlying strength being built, Unilever's historically high yield might be for you.
2. There's a lot of bad news at Hormel
Food maker Hormel hasn't been as successful as Unilever in passing its rising costs on to consumers. It has also been dealing with limited turkey supply, thanks to avian flu, in its Jennie-O Turkey operation. Meanwhile, China hasn't bounced back as quickly as hoped from coronavirus lockdowns. And the recent acquisition of Planters hasn't been as smooth as hoped because of a weak nut market. There's a reason why investors have pushed Hormel's yield up to 2.9%, near the highest levels in the company's history.
HRL Dividend Yield data by YCharts.
But this Dividend King has survived hard times before and continued to reward investors well. Most of the problems it faces, meanwhile, are fixable or transitory in nature. And there's one more thing worth noting: The Hormel Foundation owns roughly 47% of Hormel. The dividends it collects help to fund its philanthropic efforts. Given the large stake it owns, you can bet it is pushing hard for a strong, growing, and sustainable dividend. If you want to invest alongside this giant dividend-focused shareholder in a company with a long history of success behind it, all you need to do is buy historically high-yield Hormel today.
3. Realty Income sees plenty of opportunity
As a retail-focused real estate investment trust (REIT), Realty Income is dealing with a big headwind in the form of rising interest rates. This is a big part of the reason why the stock has declined, and the yield has risen to 6.1%, which is near the highest levels of the past decade. Given that rising interest rates and a falling stock price increase Realty Income's cost of capital, investor fears aren't unfounded. But with 29 years' worth of annual dividend increases, this REIT has operated through tough times before.
O Dividend Yield data by YCharts.
What's more interesting here is that Realty Income believes rising rates are going to open up big opportunities. That's because companies that own property are going to have to roll over debt at higher rates. Realty Income's sale/leaseback approach might be a more attractive way for companies to raise capital. And the numbers here are huge, with Realty Income estimating that its addressable sectors in the S&P 500 will see $1.2 trillion worth of debt maturing between 2024 and 2027. Those same companies own $1.6 trillion worth of property. Realty Income expects to be able to turn lemons into lemonade, and you can still get in on that action while the dividend yield is historically attractive.
Attractive yields for the long-term investor
No investment is perfect, particularly if you are looking at a stock with a historically attractive yield. So, yes, Unilever, Hormel, and Realty Income all have some warts. But there are reasons to believe that the headwinds they face will pass and that their strong fundamental businesses will shine through. That may take a little while, of course, but don't forget that you're being paid well to wait for better days.
