Hormel Foods (HRL) owns Spam, a meat product that is often the butt of jokes. But that’s just one of many brands it owns and, frankly, Spam is a growing business. Before you pass off Spam or the company that makes it as a joke, you need to read more about this Dividend King, its historically high yield, and admirable track record.
A long, long time
Hormel was founded in 1891. Today, the food producer has a market capitalization of around $24 billion, making it a pretty big player in the consumer staples space. It isn’t nearly as prominent as peers like Kraft Heinz or General Mills, but don’t let the company’s under-the-radar status fool you. It’s very attractive for dividend growth investors.
High up on the list of attributes is the company’s status as a Dividend King, with over 55 straight years of annual dividend increases. Notably, the dividend has increased at an annualized rate of more than 10% over the past decade.
That’s impressive, but there’s more to the story than just dividends. For example, besides Spam, the company’s brands include Skippy, Planters peanuts, Wholly Guacamole, and Columbus deli meats. It has leadership positions across the grocery store.
The company also sells directly to the food service space, selling pre-cooked meats. Hormel’s products basically save restaurants and other dining places both time and money. This is increasingly important now, given inflation and the hiring difficulties that companies face.
And Hormel has only modest exposure outside of North America, giving it plenty of room to expand its brand-driven business globally. There’s a lot to like here.
Getting no respect
There are a couple of reasons Hormel doesn’t get more attention. One is that its dividend yield tends to be low relative to larger peers. Right now, the yield is around 2.4%, compared to 4% for Kraft Heinz.
But Hormel’s yield is actually toward the high end of its historical range. So while investors looking to maximize their current income might not find it attractive, dividend growth investors should be extremely interested today since it looks relatively cheap compared to its own past.
Another reason Hormel lacks a huge following on Wall Street is that roughly 47% of the shares are owned by one investor. But it’s important to understand that this investor, the Hormel Foundation, is pretty well aligned with the aims of long-term individual investors.
The purpose of the foundation is to donate money to charitable causes and to ensure that Hormel Foods remains an independent company. And its donations are really dependent on Hormel’s dividend, so it wants to see a reliable and growing payout — just like you.
The business is facing some headwinds right now. Inflation is one, but that’s industrywide. Another big one is avian flu, which is hitting the company’s turkey operations (its Jennie-O brand in particular). And there’s little it can do about the problem until the illness is under better control across the U.S. poultry industry. So there are some reasons to be concerned in the short term, but the long-term picture remains very bright.
Get to know this stock
Hormel probably won’t be a name that you’ll bring up at a cocktail party, but so what? It is a reliable dividend payer with a fast-growing dividend and a historically high yield. Add in a strong business that you know isn’t going anywhere (thanks to the Hormel Foundation’s huge ownership stake), and even conservative investors should feel comfortable stepping in here.
— Reuben Gregg Brewer
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Source: The Motley Fool