Updated April 21, 2021 by Bob Ciura
As the saying goes, slowly and steadily wins the race. This comes to mind when discussing the Dividend Aristocrats, a select group of just 65 companies in the S&P 500 index, each with at least 25 consecutive years of dividend hikes.
The Dividend Aristocrats are some of the best stocks for investors looking to create long-term wealth that can last for generations. With that in mind, we’ve made a full list of all Dividend Aristocrats along with relevant financial metrics like value for money.
You can download your full link on Dividend Aristocrats by clicking the link below:
Hormel Foods (HRL) is the definition of a slow and steady stock. While it won’t make investors rich overnight, it has steadily built wealth for its shareholders over many years.
Hormel operates in a stable industry and has many strong brands. In addition, shareholders were rewarded with 55 consecutive years of rising dividends. Overall, Hormel has been paying dividends for over 90 years.
In addition to being a dividend aristocrat, Hormel is a dividend king, thanks to its excellent track record of returning cash to shareholders. The Dividend Kings have increased their dividends for over 50 years in a row. You can see all of the dividend kings here.
This article explains why Hormel is a high quality dividend growth stock and provides a perspective on the company’s growth and valuation prospects.
Hormel was founded in 1891 when George A. Hormel founded the Geo. A. Hormel & Company of Austin, Minnesota. Consumers liked Hormel’s fresh pork products, which were a novelty at the time. In 1926 the company produced the world’s first canned ham.
Hormel has continued to grow over the past few decades and now has annual sales of approximately $ 10 billion. Today the company has a diverse product portfolio that spans several categories. Some of the major brands are Skippy, Jennie-O, Spam, Hormel, and Dinty Moore. In recent years, more natural products have been added to complement processed offerings like Justin’s and Applegate.
Source: Investor Presentation
Hormel reported having earned in the first quarteron February 18thth, 2021 The results were largely in line with expectations. Total sales increased 3% over the course of the year– –over– –Year to a record of $ 2.5 billion. The gain was due to the pricing and mix which was more than Offset a – –1% decrease in volume.Diluted earnings– –Per– –Share fell – –9% to $ 0.41 year over year– –before period.
We believe that Hormel is on the right track to slowly drive sales and margins thanks to improved volumes and a product portfolio with higher margins.
Hormel has an extremely impressive history in which it has achieved constant growth from year to year regardless of the general economic climate. This speaks for the company’s strong brands and its stamina in periods of recession.
Hormel’s growth prospects depend on a few different levers it can pull in the years to come. The organic growth is likely due to the company’s strong brands. In addition, Hormel has taken the habit of buying its growth over the years through acquisitions.
The most recent example is Hormel’s acquisition of Kraft-Heinz’s (KHC) planters snack nut portfolio, valued at $ 3.35 billion. The acquisition fits perfectly with Hormel’s longstanding acquisition strategy.
Source: Investor Presentation
The deal is expected to provide Hormel with a tax benefit of $ 560 million for a net price of $ 2.79 billion. The Portfolio produced $ 1 billion in sales in 2020 and should reach Hormel by a long time– –Concept of organic growth goal.
Hormel expects growers to start adding value from a margin perspective 2022 and expects synergies of $ 50 million up to 60 million US dollars are realized annually by 2024. The transaction should close in the second quarter of 2021. The Hormel CEO said he was “increasingly optimistic” about sales and earnings growth in this regard Year and led for $ 1.70 to $ 1.82 profit– –Per– –Stock that does not include the expected effects of tThe planter acquisition.
All of these things should support earnings growth as they increase sales or margins. Therefore, we believe annual growth of 4% is appropriate, especially when organic sales growth accelerates.
Competitive advantage and recession performance
Hormel has a number of operational advantages. First, the company operates in a wide variety of food companies that are very stable. Everyone has to eat, which keeps the company in demand even in recessions.
In addition, Hormel’s products are affordable for everyone, so the stability should shine through in difficult economic times.
In addition, Hormel has many strong brands that give the company pricing power. Overall, Hormel is No. 1 or No. 2 in over 40 of its brands.
Its popular products make it difficult for competing food companies to gain market share. In fact, Hormel has been in this enviable leadership position for years, which is certainly an enduring asset.
Hormel’s competitive advantages offer the company a recession-resistant business model. Hormel’s earnings per share during the Great Recession are shown below:
- 2007 earnings per share of $ 0.54
- 2008 earnings per share of $ 0.52, down 3.7%
- 2009 earnings per share of $ 0.63, up 21%
- 2010 earnings per share of $ 0.76, up 21%
As you can see, Hormel saw a slight drop in earnings in 2008 and then posted earnings growth of over 20% for two consecutive years. We expect Hormel to do very well in the next recession.
Valuation and expected return
We anticipate Hormel to generate adjusted earnings per share of $ 1.75 for fiscal 2021. Based on this, the stock is trading at a price-earnings-ratio of 26.9. This is well above Hormel’s average 10-year value for money. We see the fair value for Hormel at a PER of 22.
As a result, Hormel appears to be overrated. If the P / E ratio fell to 22 over the next five years, the annual return would decrease by 3.9% per year.
While the stock is unlikely to see a higher valuation multiple, it can still generate some positive returns from earnings growth and dividends. Including the expected EPS growth of 5% and the dividend yield of 2.1%, the total return is estimated at 3.2% per year.
The company’s dividend is very secure and it will almost certainly grow for many years to come. Given that the return is roughly in line with the broader market and the valuation is so high, we rate Hormel as a sale.
If the valuation weren’t that high, we could upgrade Hormel to hold or buy. Until then, however, we recommend that investors steer clearly, also taking into account the improved growth path.
Hormel has paid quarterly dividends in a row since its inception in 1928. It has established one of the longest streak of dividend increases in the market and is a dividend king.
Consumer staple stocks, especially food companies with strong brands, enjoy steady demand and pricing power. There is no question that Hormel has a strong business with a high quality brand portfolio.
The stock is overvalued, however, which means that investors buying at this price level are likely to get relatively poor returns. Even with forecast EPS growth and dividends, overvaluation means the stock is pricing in too much growth today.
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