Hershey's (HSY -0.53%) stock has fallen on hard times of late thanks, in part, to investor concerns about a new breed of weight loss drugs. The concerns helped push the stock down roughly 30% from its 52-week high. The stock drop, in turn, increased the dividend yield to 2.4%, which is actually fairly attractive for the stock.
If you think the worries about weight loss drugs affecting Hershey's sales are overblown, you might want to take a look. As you do, you might notice one more little oddity about the company that makes me extra happy to have had the opportunity to add Hershey to my own portfolio.
I'm partnering with one big owner
Shareholders effectively own Hershey, as with all public companies. Shareholders hire a board of directors. The board of directors then hires a CEO. And the CEO hires the company's employees. The board helps to guide the CEO on an ongoing basis. There's nothing abnormal about this structure at all, but there is one small problem for small investors: Individually, and even collectively in many cases, we don't really have a large enough voice to sway the board.
Image source: Getty Images.
But there's a unique, subtle, and strange twist when it comes to Hershey. There is one investor that owns nearly 40,000 shares of common stock and over 57 million shares of the company's class B shares. While the common share ownership here is relatively modest, this entity owns 99.9% of the class B shares. Here's the key fact: "Stockholders are entitled to cast one vote for each share of Common Stock held as of the Record Date and 10 votes for each share of Class B Common Stock held as of the Record Date."
That basically means that the class B shares control the outcome of any shareholder vote. Let's put some math to that. At the end of 2022, there were 146,922,179 common shares, each of which was entitled to a single vote. There were 57,113,777 shares of class B stock, each of which was entitled to 10 votes, adding up to 571,137,770 votes. So the total votes that could be cast was just over 718 million, with the B shares accounting for nearly 80% of the total. So whatever the class B shareholder says goes.
The owner of all that voting power is the Hershey Trust. This is actually kind of similar to the setup at Hormel (HRL 0.14%), where the Hormel Foundation controls around 46.8% of that company's shares.
What does this mean for me?
There are a couple of important takeaways here. First, a buyer would have to convince the Hershey Trust to vote for a sale in a takeover situation. That's probably not likely to happen without a huge premium. Notably, one of the Hormel Foundation's explicit goals is to ensure that Hormel remains a stand-alone company.
Second, the dividends paid by Hershey are a key funding source for the non-profit Hershey Trust as it donates money for the betterment of society. The same is true at Hormel. But this basically means that Hershey, and Hormel, have huge investors that want to see the companies pay reliable and growing dividends. That's exactly what I want to see too. And it helps explain why Hershey's dividend has been increased annually for 14 consecutive years and has trended generally higher for decades.
We're aligned, but there's a history here
That said, the Hershey Foundation has often found itself in the headlines for less than desirable reasons (think things like infighting and insider trading). But what happens at the Hershey Foundation, other than its voting, doesn't actually impact the day to day decisions at Hershey the company. So I don't worry too much about the Foundation's bad press. And while I'm sure the Foundation could poke its nose where it doesn't belong, it doesn't want to kill the golden goose that lays the dividend eggs. So the more likely outcome is that the Hershey Foundation leaves Hershey's business mostly alone.
All in all, I may not have a loud voice at Hershey, but the Hershey Foundation certainly does. The fact that we both want to get paid a reliable dividend is a very big plus for me in owning Hershey stock.
