Welcome to this series where I will be reviewing all the Dividend Kings and providing an overview and valuation calculation on the companies. Dividend Kings are a rare breed of Dividend Growth Companies. These companies have managed to raise their dividend for 50 or more years consecutively. Through all types of market swings, economic trouble, wars, recessions, these companies have seen it all and continue to reward shareholders with rising dividend income.
This week’s entry will focus on:
HRL – Hormel Foods Corporation
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Overview
Hormel Foods Corporation develops, processes, and distributes various meat, nuts, and food products to retail, foodservice, deli, and commercial customers in the United States and internationally.
The company operates through four segments:
- Grocery Products,
- Refrigerated Foods,
- Jennie-O Turkey Store
- International & Other.
Its brand names include SKIPPY, SPAM, Hormel, Natural Choice, Applegate, Justin’s, Jennie-O, Café H, Herdez, Black Label, Sadler’s, Columbus, Gatherings, Herdez, Wholly, Columbus, Planters, NUT-rition, Planters Cheez Balls, and Corn Nuts.
Hormel Foods Corporation was founded in 1891 and is headquartered in Austin, Minnesota.
(Source: Company Website)
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Metrics:
Dividend Amount: $1.04
Dividend Yield: 2.19%
5 Year Dividend CAGR: 9.37%
Payout Schedule: February, May, August, November
Dividend Payout Ratio: 59.43%
Years of Dividend Increases: 56 Years
P/E: 23.01
Analyst 5 Year Earnings Growth Estimate: 8.60%
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Valuation:
Current Price: $47.62 (7/22/22)
DCF (10% RRR): $41.61
P/E Mean Reversion: $44.36
Dividend Yield Theory: $52.79
Average of the three: $46.25
Analyst 1 year Price Target: $46.25
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Commentary:
Hormel Foods Corporation (HRL) is a global food manufacturer and distributor. The company has many brand names that we all buy and have in our house, including some more popular names like Skippy peanut butter, Planter’s nuts, and the venerable SPAM. Per the company’s website, they have over 40 products that are number 1 or 2 in their category and sell products in over 80 countries. The company competes with other food brands including PepsiCo, General Mills, and store brands throughout the world.
HRL has raised its dividend for 56 years, which is one of the longest dividend growth streaks for U.S. companies. The consistency of this dividend growth is impressive when considering all the market volatility, recessions, wars, and societal changes during that long history. The current yield at 2.19% and their 5 year dividend CAGR is 9.37%, which is a solid combination. This dividend CAGR is in line with the company’s projected earnings growth. The payout ratio is reasonable and leaves room for increases over time as the company’s earnings grow.
The company’s revenue has generally been up over the past 5 years with total revenue rising from $9.5B in 2018 to $12.5B today but net income has remained flat to down over that time. The stock has increased 42.70% over the past 5 years, compared to the S&P’s return of 59.93%. Over the past year the stock is up 1.41% compared to the S&P being down 9.46%.
As you would expect from a stable company like Hormel, the company has provided a steady return over time. HRL is a stable company and tends to perform well during recessions. The worst yearly returns for HRL since 1994 was -21.66% compared to the S&P’s worst year of -36.81%. The company has had a 12.15% CAGR since 1990, which is very solid, turning a $10,000 investment into $415,000 today. The company does appear to be fairly valued to overvalued at this time. The current dividend is lower than my required investment criteria but the dividend growth is solid and will compound nicely over time. The consistency and length of dividend payments shows that this may be a good option for the consumer staples part of your portfolio.
Disclosure: I do not own shares of HRL.