The consumers staple industry is always highly sought after by dividend investors. They typically are companies that have been around for many, many years that date back even before our time. As dividend investors, we love companies that make products that are widely consumed by majority of the populations, at least in developed countries, but also those that have plans to expand to those countries not as developed. Growing up, I loved pepperoni, chili and other types of food. A brand sticks out to me that serves both up, as well as is expanding into the food conscience society we live in now and that major player is Hormel Foods Corp. (HRL). On October 19th, I purchased shares into this perfectly tasteful pepperoni making company!
The Stock – Hormel Foods (HRL)
Hormel has been around for more than 125 years. From Google Finance, “Hormel Foods Corporation is engaged in the production of a range of meat and food products. ” Further, from their homepage, “Bringing high-quality branded products that are flavorful, nutritious and convenient puts us among the most trusted and well-known food companies in the world. Making sure those products have an extra helping of inspiration is what sets us apart. Over 30 of our brands are No. 1 or No. 2 in their categories and our products are marketed in more than 75 countries, including China, Japan, Australia, South Korea and the Philippines. We have continued to grow our family of brands with the recent additions of CytoSport, Applegate and Justin’s. Adding these companies to our existing broad portfolio of iconic brands keeps our company strong and on trend with today’s consumers.” That is pretty impressive. They have OVER 30 brands that are number 1 or 2 in respective categories in more than 75 countries. That is not an easy feat, whatsoever. This is a feat that allows them to increase their dividend for 51 straight years, and counting, might I add. Since I am a dividend investor, why don’t we throw Hormel (HRL) through our Dividend Diplomat screener for good old sake.
Dividend Diplomat Stock Metrics
1.) Price to Earnings (P/E) – The price point at the purchase date was $30.47. According to analyst estimates for the year, they are expecting $1.57 earnings per share. Based on that price point and these earnings expectations, the price to earnings calculated to be 19.4, slightly on the higher side, but below the S&P 500 p/e ratio of 25.64. Further, next year earnings expectation is $1.68 according to analysts (all 11 of them), which calculates a forward ratio of 18.14, which is more palatable as well. Under 20, consumer stock AND they were trading at their 52 week low? I like it.
2.) Dividend Yield – Hormel currently pays $0.68 per year or $0.17 per quarter. At the time of purchase, the yield calculated out to be 2.23% (dividends divided by share price). This is definitely below my portfolio average yield, but was 34 basis points higher than the S&P 500 yield of 1.89%. Not the greatest yield, but I haven’t seen Hormel at this yield in quite some time. A dividend aristocrat with an above average of the S&P yield? Sounds good to me.
3.) Dividend Growth Rate – Hormel has paid dividends and increased them for over 51 years! That is impressive, first off. Secondly, their five year dividend growth rate is a staggering 17.84%, partly due to the lower yield that they have. Incredible. Their most recent increase also came in at 17.2%, which is consistent with their 5-year track record. They have an announcement coming up at the end of November, which is their typical dividend increase month. We shall see what fruit the tree bears. Find out why the dividend growth rate is extremely powerful. Now with such a great growth rate, one would think the dividend payout ratio would mean something for Hormel.
4.) Dividend Payout Ratio – As discussed in #2, the dividends paid per year amounts to $0.68. From #1, their earnings per share for 2017 (expected) is $1.57. The dividend payout ratio equates to 43% (0.68/1.57), which is in my favorite sweet spot of between 40% and 60%. This allows ample room for steady dividend growth going forward and protects them from any severe crisis or poor performance year. This is a positive point, given Amazon’s (AMZN) entry into the food market.
To show proof of the purchase:
I purchased $1,499.98 worth at $30.47 per share for a total of 49 shares, with a $6.95 trading fee. This added $33.32 to my forward dividend income. Very excited for ANOTHER dividend aristocrat to be added to my dividend portfolio, especially as I recently crossed the $300,000 mark and am inching towards my year end goals, as you can see from my Quarter 3 goal update.
Hormel Foods Corp. (HRL) Stock purchase summary & conclusion
This is another NEW addition to my portfolio and I am very excited about the dividend growth metrics. This marks the 11th purchase this year and pushes me towards the dividend goal. I always see my friends and family member have a product or two in the cupboard or out for parties, those party trays are fantastic. The history of the company, the dividend history and dividend growth is really getting me excited for November! Did I mention that this was purchased the day before their ex-dividend date? Damn right, this was a very lucky timed investment purchase, as I will capture the last dividend of the year!
Now onto the readers, what do you think of this dividend stock purchase? Do you like it? Are you staying away from consumer food companies due to Amazon (AMZN) and/or the ever changing customer preference? Would you buy at this price? I appreciate the feedback and insight you have on this investment decision! Thank you again, everyone, good luck and happy investing!
-Lanny