Hershey: Appetite for Growth & Income
12/21/2016 10:00 am EST
Investors with an appetite for dividends and growth all in one stock should consider this leading name in chocolates and sweets, explains Bob Ciura, editor of Daily Profit.
Hershey (HSY) faces a bright future ahead, with plenty of growth opportunities in the U.S. and overseas. Hershey should continue to offer investors a mix of growth and dividends.
Most of Hershey’s annual revenue comes from the U.S. its international exposure stands to increase going forward. Emerging markets like China have high growth potential for the company.
This is not helping at the moment, since the strong U.S. dollar hurts companies with international operations.
Over the long-term, however, Hershey’s international expansion should benefit the company. Under-developed economies stand to grow at a higher rate than more mature markets like the U.S. and Europe.
In addition, Hershey’s strong brand allows the company to raise prices and take market share. Lastly, Hershey is poised to grow through acquisitions.
Hershey acquired barkTHINS in the second quarter. It also acquired Brookside, to claim a greater share of premium chocolate. In 2015, it acquired beef jerky maker Krave to diversify into protein-based snacks.
Hershey expects to deliver approximately $135 million in cost savings this year and at least $100 million each year from 2017-2019.
With revenue growth and margin expansion, it is not unreasonable to expect the company’s earnings per share to increase at a high-single digit to low-double digit rate moving forward. Last quarter, earnings per share adjusted for non-recurring costs increased 10.3%.
In addition to Hershey’s solid 2.5% dividend yield, investors could conceivably earn 10%-12% annualized returns moving forward.
Hershey generates steady profits, and the company uses its cash flow to reward shareholders with cash returns.
Hershey is in the process of executing a $500 million share repurchase program. There is $100 million left in the authorization. Continued share buybacks will help boost earnings growth.
Hershey is also a rock-solid dividend payer. In fact, it has paid uninterrupted dividends for the past 87 years. The company also grows its dividend regularly. In 2016 the company upped its shareholder payout by 6%.