While I don't expect the Fed to start cutting rates, it's possible that the trajectory and pace of interest rate hikes could very well get rolled back, which would be a very welcome surprise — and could be a catalyst for a knock-your-socks-off rally, asserts Tony Sagami, editor of Weiss Ultimate Portfolio.
Our latest recommendation — The Hershey Company (HSY) — will take advantage of that potential rally at a time when the consumer staples sector of the S&P 500 is the best performing over the past three months. In fact, consumer staples are outperforming the broad S&P 500 index and its best-performing sector of the year, energy.
Back to the global chocolate king who’s dominated the industry since its inception in 1894 — I still remember the Hershey Kiss that that I got for Valentine’s Day in the third grade. But there is a lot more to Hershey than its Kisses.
Hershey produces several of America’s favorite sweets, such as Reese’s Peanut Butter Cups, Twizzlers, Kit Kat, Milk Duds, Almond Joy, Jolly Ranchers, Hershey’s Cocoa, York Peppermint Patty, Whoppers, Cadbury, Payday and Mr. Goodbar.
Additionally, Hershey has a fast-growing line of better-for-you snacks: Skinny Pop, gluten-free Pirate’s Booty popcorn, ONE Bars, Dot’s Homestyle Pretzels and non-GMO Paqui tortilla chips.
How fast is it growing? The snacks division reported an 87% year-over-year increase in revenues. But Hershey’s bread-and-butter is its North America confectionary (candy) business, which accounts for 85% of its total revenues. Over the last year, revenues jumped by 11.7% to $2.2 billion. Segment income rose 22% YoY to $781 million, while segment margins improved to 35.3% from 32.4%.
Overall, Hershey’s revenues from all divisions increased by 16.1% to $2.67 billion driven by combination of a 7% increase in prices and a 5% increase in sales volume. Inflation hasn’t materially affected Hershey either; its profit margin expanded from 45.7% last year to 46.7% in the most recent quarter.
That combination of rising revenues and rising profit margins has translated to a massive increase in annual cash flow, from a little over $1 billion in 2017 to over $2 billion today. Business is so good that Hershey increased its 2022 full-year sales growth forecast from 8-10% to 10-12%, and its profit forecast from $7.84-$7.98 to $7.91-$8.05 per share.
Hershey also pays a nice annual dividend of $3.60 per share, which translates into a 1.6% dividend yield. That’s nice, but that dividend will continue to increase. Hershey has increased its dividend for 12 straight years by an average of 9.3% a year since 1993. The next quarterly dividend will be paid in mid-August.
The Hershey Trust
Founded in 1905, The Hershey Trust owns and oversees the Milton Hershey School, a private boarding school for children from low-income families, owns Hershey Park and has controlling interest in Hershey’s candy company.
The Hershey Trust owns 59,612,012 shares of HSY worth almost $13 billion and depends on the Hershey dividends to fund its charitable endeavors. Talk about strong hands!
That’s one major shareholder that you won’t have to worry about dumping its shares. And as icing the cake, the company receives a Weiss Rating of “B+,” making it firmly a “Buy”-rated stock.
