Dividend King Hormel (HRL 0.14%) is a food maker with a collection of industry-leading brands. But the company has been struggling lately due to inflationary cost pressures, avian flu, a slow COVID-19 recovery in China, and a weak nut market. However, green shoots are starting to show up in its business which suggests the future could be trending in a much more positive direction.
Here are three reasons why dividend growth investors should consider buying Hormel today.
1. Get in before Wall Street catches on to the story
After Hormel reported fiscal first-quarter fiscal 2024 results, the stock rose sharply and held on to most of the gains. Investors liked the food maker's earnings update. But the stock price remains around 35% below its 2022 highs. It appears that there could be a lot of room for upside here. If the next few quarters show continued strength, Wall Street is probably going to become increasingly bullish on Hormel.
HRL Dividend Yield data by YCharts
That said, Hormel's yield is near its highest levels in recent history at 3.3%. This is another sign that Hormel is still attractively priced, using the dividend yield as a rough gauge of valuation. In other words, the story seems to be improving and you might want to get in while you have a chance to take advantage of that.
2. Hormel has a long history of success behind it
Sticking with the dividend theme, Hormel has proven it knows how to persist through hard times while continuing to grow over the long term. The biggest highlight on this front is the company's status as a Dividend King. You simply don't build a record of 57 consecutive annual dividend increases by accident.
The dividend growth rate over the past decade was in the low double digits, which is very fast for a consumer staples company. More recent increases have been in the mid- to low-single digits, but that's to be expected while the company is facing headwinds (more on that below). And that speaks to a bigger truth here: Every company faces hardship at some point. If a business has been around long enough, it will probably have to go through multiple weak patches.
The big question is: How does the company muddle through those inevitable periods of pain? Hormel has managed the difficult times fairly well, given the impressive dividend growth record it has established. It's probably a good idea to give management the benefit of the doubt this time around based on the company's long history of success.
3. None of Hormel's problems are permanent
Hormel is dealing with multiple headwinds all hitting at one time. That's not great and, understandably, investors are worried. However, taken individually, these problems are likely to be temporary. For example, Hormel hasn't been as successful as its peers in increasing its prices to offset the impact of inflation. But in the fiscal first quarter of 2024, volume rose in each business segment, suggesting that the company may finally be gaining some traction with consumers.
Avian flu is hampering supply in the company's turkey business, but that issue waxes and wanes over time. It is unlikely to be permanent and there's nothing that Hormel can do here but wait. And yet, it managed to grow "retail volume and sales of Jennie-O turkey items during the quarter, including above-category performance in the fresh ground turkey category."
The slow recovery in China is still a lingering issue, but strength in food service in that country suggests that the nation is starting to get back on track. And while Planters is dealing with a tough nut business, Hormel is gaining volume share in the segment. Just like the turkey division's figures, Planters' results suggest that this food maker is executing well even during hard times.
HRL Dividend Per Share (Quarterly) data by YCharts
None of these problems is actually behind Hormel. And the collective impact has been hard on the business (and the stock). But all of these issues are likely to be temporary, which appears to be providing dividend growth investors an opportunity to buy in while Hormel looks like it is still on sale.
Don't wait too long to buy Hormel stock
Hormel has been a tough stock to love over the past few years. But it hasn't let dividend investors down, continuing to increase the dividend despite the headwinds it has faced. Now that the company appears to be regaining its footing, you might want to take a closer look and add this Dividend King to your portfolio while the yield is still historically high. If Hormel puts up a few more solid quarters, that may no longer be the case.
