What happened
Shares of Hormel Foods (HRL 0.14%) were taking a dive after the normally solid consumer staples stock disappointed the market with its long-term forecast and struck a deal with its union to pay higher wages.
As a result, the stock finished the day down almost 10%.
Image source: Getty Images.
So what
In its Investor Day conference today, Hormel, which is best known for Spam and other protein-centric brands, discussed a number of initiatives it's focused on to continue growing the business.
However, its goal of adding $250 million in operating income by 2026, or a compound annual growth rate of 5% to 7%, seemed to fall short of investor expectations.
The company said it would drive savings by minimizing complexity, tapping consulting firm Accenture to help streamline the business, and it sees normalization in the supply chain. At least $200 million in operating income will come from that initiative. It also sees at least another $25 million coming from capturing incremental value from M&A synergies and its Jennie-O transformation.
What also seemed to weigh on the stock was news that it had renegotiated its contract with the United Food and Commercial Workers International Union to give the largest wage increase in the company's history, at $3 to $6/hour.
Now what
Hormel is a longtime dividend payer, having raised its quarterly payout every year for 57 years, and most investors own the stock for its consistent dividend income and its resilience in a recession, as it sells a wide range of supermarket staples, including canned items that consumers are likely to turn to save money.
In that light, the 5% to 7% annual increase in operating income doesn't seem bad.
The stock currently offers a 3% dividend yield, and it should continue to increase it as it grows. With this safe stock now trading at a 52-week low, income investors may want to take advantage and buy the dip.
