Dividend Aristocrat Hormel Foods Share Price Pullback Might Be a Buying Opportunity (HRL)
By: Ned Piplovic,
A Dividend Aristocrat for nearly 30 years, the Hormel Foods Corporation (NYSE:HRL) continues delivering a steady streak of dividend income distributions and long-term asset appreciation for reliable total returns on shareholder investment.
However, the company’s share price is currently nearly 10% down from the all-time high six month ago. Furthermore, Hormel Foods is facing some headwinds as production costs are likely to rise on anticipated increases in pork prices over the near term. The main reason for the anticipated rise of pork prices is the recent spread of African swine fever in China. This fever is limiting the total global supply of pork and increasing demand for non-Chinese pork sources, thus driving up local prices.
Hormel Foods also currently works on turning around its Jennie-O Turkey Store segment. The segment’s sales declined 3.7% in fourth-quarter 2018 compared to the last quarter of the previous year and also were 0.5% lower year-over-year in first-quarter 2019. However, the segment’s second-quarter volume increased 2% and net sales matched the same period last year.
Despite these headwinds, the overall company continues to deliver incremental growth and is a strong performer over the long term. Furthermore, Hormel’s solid balance sheet allows the company to weather the headwinds and position itself well for the long term expansion. Just in the second quarter of 2019, Hormel Foods increased its working capital 31.6% from $911 million to nearly $1.2 billion. Also, cash on hand increased 39% to $639 million from $459 million at the beginning of the year.
With the strong financial position to fund its future capital needs, Hormel Foods can continue its long streak of dividend payouts. Since initiating dividend distributions in 1928, the company has not missed a dividend payout in the past 363 consecutive quarters. Just over the past two decades, Hormel Foods enhanced its total annual dividend amount more than 10-fold. This advancement is equivalent to an average growth rate of 12.4% per year. Additionally, the company has boosted its annual dividend over the past 53 consecutive years to earn its Dividend Aristocrat designation.
Moreover, as a component of the S&P 500 Index with a market capitalization of more than $3 billion, Hormel Foods first qualified for the dividend aristocrat status in 1991. Only 10 other Dividend Aristocrat companies have dividend hike streaks longer than Hormel’s. In addition to being included in the selective Dividend Aristocrat club of just 57 S&P 500 companies, Hormel’s streak of consecutive annual dividend hikes exceeds 50 years, which makes Hormel Foods also a Dividend King. Even more exclusive than the Dividend Aristocrat group, currently only 13 companies meet requirements for the Dividend King title.
While experiencing an elevated level of volatility in the past couple of years, Hormel’s share price is still closely following its long term uptrend. While the 2008 financial crisis devastated many securities by forcing share price losses of more than 90% in some instances, The Hormel Foods share price declined approximately 30% during the crisis and resumed its uptrend right after bottoming out in late 2018. Since late 2018, Hormel’s share price advanced nearly six-fold despite the double-digit-percentage pullback in 2018.
Hormel Foods Corporation (NYSE:HRL)
Based in Austin, Minnesota, and founded in 1891, the Hormel Foods Corporation produces and markets various meat and food products through five business segments: Grocery Products, Refrigerated Foods, Jennie-O Turkey Store, Specialty Foods and International & Other. The company offers various perishable meat products, including fresh meats, frozen items, refrigerated meal solutions, sausages, hams and bacon. Additionally, Hormel produces shelf-stable products, such as canned luncheon meats, peanut butter, chilies, shelf-stable microwaveable meals, stews, meat spreads, flour and corn tortillas, salsas, tortilla chips and other products. Also, the company also offers turkey products, nutritional food products and supplements, dessert and drink mixes and industrial gelatin products. Hormel markets and distributes its products in more than 70 countries and more than two-thirds of its current 41 brands have either the largest or second largest share of their respective market category.
Entering the trailing 12-month period on a rising trend, the share price hit its 52-week low of $35.59 on June 20, 2018. After bottoming out less than two weeks into the current one-year period, the share price advanced nearly 30% before reaching its all-time high of $45.89 on November 16, 2018. The share price declined nearly 10% from the all-time high to close on June 6, 2019, at $41.49. While down from its recent peak on June 6, closing price was 16.3% higher than it was one year earlier, 16.6% above the 52-week low from mid-June 2018 and nearly 7% higher since May 28, 2019. Additionally, the current closing price has gained 72% over the past five years.
The current $0.21 quarterly dividend is 12% higher than the $0.1875 quarterly payout from the same period last year. This new quarterly dividend amount corresponds to an $0.84 annualized dividend and a 2% forward dividend yield. While lower than yields in some other segments, Hormel’s current yield is 13.7% higher than the company’s own 1.78% average yield over the past five years and 5.45% higher than the 1.92% simple average yield of the entire Consumer Goods sector. Additionally, as the company with the highest dividend yield in the Meat Products industry segment, Hormel’s current 2% yield is 125% higher than the segment’s 0.9% simple average yield, as well as 70% higher than the 1.19% average yield of the segment’s only dividend-paying companies.
Even with an average dividend yield and a 10% share price pullback in the last six months, Hormel Foods still delivered a 17.2% total return over the past 12 months. Over the past three years, shareholders received a 26% total return. Lastly, the total returns exceeded 81% over the past five years.
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