Hormel: More than SPAM

11/08/2018 5:00 am EST


Chloe Jensen

Chief Analyst, Cabot Dividend Investor

Hormel Foods (HRL) is a dividend aristocrat that started a new uptrend just a few months ago and just hit a new 52-week high, asserts income expert Chloe Lutts Jensen, editor of Cabot Dividend Investor.

Hormel is best known for their meat products, including their Hormel-brand pepperoni, bacon, deli meats, chili and prepared meals. But the company also owns a range of other brands you might know from your grocery store, including Jennie-O, Applegate Organics, Columbus, and SPAM.

Refrigerated foods, mostly meat products, contribute 66% of net sales. But Hormel is increasingly expanding into other areas of the grocery store as well, with strategic acquisitions like Skippy peanut butter, Justin’s nut butters, Wholly Guacamole dips, and Muscle Milk beverages.

Groceries are a stable business. Hormel’s operating income, net income and EPS have all increased in each of the last 10 years except 2017. This year is shaping up to be a return to form. Hormel already reported third-quarter earnings in late August. Earnings were up 15% year-over-year, thanks to the combination of 7% sales growth and a lower tax rate.

The company will report fourth-quarter and full-year earnings November 20. For the quarter, analysts are expecting Hormel to report 2.9% revenue growth and 19.5% EPS growth. For the full year, analysts are expecting 4.7% revenue growth and 19.1% EPS growth.

Hormel has paid dividends since 1928, and has increased the dividend every year for 51 years, making the stock a longtime member of the dividend aristocrats. Over the past five years, Hormel has increased the dividend by an average of 17% per year.

Hormel’s long dividend history and low payout ratio earn the stock a perfect Dividend Safety Rating of 10 out of 10. And combined with analysts’ forward earnings estimates the company’s track record of dividend increases earns HRL a nearly perfect Dividend Growth Rating of 9.8 out of 10.

These numbers indicate that HRL is a safe investment for anyone looking to secure a reliable, long-term, gradually rising income stream.

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