Hormel Foods Corporation (NYSE: HRL) , of SPAM, Dinty Moore stews and other canned lunch meat fame, is a good-sized Dividend King titan. The proof: Its 56-year track record of dividend increases. Let's put Hormel Foods Corporation under the microscope and take a look at the pros and cons of investing in Hormel Foods Corporation.
The Austin, Minnesota multinational company, sells items nationally and operates manufacturing facilities across the United States, including in California, Georgia, Illinois, Iowa, Kansas, Nebraska, Oklahoma and Wisconsin. The company has been forced to paddle upstream amid operating conditions not seen over the course of the company's 130-year history.
By the time you're done reading, you'll have a better idea of whether you may want to invest in Hormel Foods Corporation. Hint: It's not just a meat company.
About Hormel Foods
Hormel Foods Corporation was originally founded as a meatpacking plant in 1891 by George Hormel and grew into a leading multinational manufacturer and marketer of consumer-branded meat and food products.
The company develops, processes and distributes various meat (including branded and unbranded pork, beef, poultry and turkey products), nuts and peanut butter, nutritional food products and supplements, desserts and drink mixes and gelatin products to a wide variety of types of customers, including retail, foodservice, deli and commercial customers, according to MarketBeat's profile.
The company produces the following:
- Fresh meats
- Frozen items
- Refrigerated meal solutions
- Ham and bacon
- Guacamole and salsa
- Nut butter
- Snack nuts
- Microwaveable meals
- Tortillas and tortilla chips
The company sells products to sales personnel, independent brokers and distributors under several brands, including the following:
- Natural Choice
- Café H
- Black Label
- Holy Guacamole
- Planters Cheez Balls
- Corn Nuts
Learn more: 11 Dividend Stocks with High Yield and 10 Dividend Stocks to Hold Forever
Pros and Cons of Investing in Hormel
Let's take a quick look at the pros and cons so you can get an idea of whether you would prefer to sink your money into Hormel Foods Corporation or steer clear of the company altogether.
Let's take a look at the benefits of investing in Hormel Foods Corporation first:
- Dividends: If you're looking for a great buy-and-hold dividend growth stock, Hormel Foods Corporation might be it. According to MarketBeat's dividend summary, the current dividend yield for Hormel Foods is 2.28%. The annual dividend for each share is $1.04. Hormel Foods's most recent quarterly dividend payment of $0.26 per share was made to shareholders on August 15.
- Large portfolio: The company isn't just a meat company. Hormel Foods Corporation has a large portfolio of brands and has had a few new acquisitions, including the Planters snack nuts business. It also created One Supply Chain and transformed its efforts in the Jennie-O Turkey Store. The Hormel Foods International Corporation (HFIC) also expands portions of its portfolio over a variety of countries worldwide, including Australia, China, Colombia, Costa Rica, Denmark, England, Japan, Korea, Mexico, Panama, the Philippines, Poland, Spain and more.
- Record sales and income growth: In the most recent reports for Q3 of fiscal 2022, the company has proven its recession-resistant properties. It experienced net sales of $3 billion, up 6% and organic net sales were also up 3%. The company also experienced operating income of $291 million, up 40%, compared to 17% compared to last year's adjusted operating income. Operating margin of 9.6% was up compared to the adjusted operating margin of 8.7% last year. The company also reported pretax earnings of $290 million, up 42% compared to last year's $245 million earnings. Diluted earnings per share were up $0.40, up 25% compared to diluted earnings per share of $0.39 last year. Cash flow operations were up 143% to $186 million.
- Positive guidance: The company said its sales guidance will remain high due to a o strong demand for its brands, turkey markets and more. The company claims that its long-term strategy to listen to consumers and its broad portfolio of products will continue to perform, even in the current inflationary environment.
What are the challenges of choosing to invest in Hormel Foods Corporation? Let's take a look:
- Inflation: Hormel, just like every other company, is no stranger to inflation. The annual inflation rate for the United States is 8.3% for the 12 months ended August 2022, according to the U.S. Labor Department data published September 13. The company must pass on its higher costs to consumers. The company has demonstrated volume declines, but note that it's possible that it will end up coming out of this inflationary period with a stronger business overall. The company has worked to get rid of its volatile businesses and sections of the business with its lowest margins.
- Diversification: While you might assume that Hormel only produces meat products (which many consumers assume) it's not exactly true. About a quarter of Hormel’s products are plant-based, such as the Skippy, Justin’s, and Planter’s nut butter and nut brands, as well as its salsas and guacamole products. However, Hormel may need to consider further diversifying its portfolio, particularly to diversify into non-meat products. For example, the number of people reducing their meat consumption is increasing; a 2020 Gallup poll found that 23% of adults have said they will reduce the amount of meat they eat.
- Downtrend in the stock: Hormel Foods was trading high prior to the pandemic, particularly due to millions of individuals stocking up during the pandemic (Dinty Moore stew stored in pantries for the win!). On the other hand, by the time August 2020 rolled around, the stock found itself in a downtrend, which continued in September 2022.
Is Hormel Foods Corporation a Worthy Investment?
Though the stock price has hit the skids over the last month, the company has increased its revenues as of Q3. Even if investors as a whole haven't felt enamored by the stock (market sentiment is a real thing!), it has proven that earnings are at odds with its stock price and it will likely continue to grow its balance sheet.
Learn more: Dividend Kings vs. Aristocrats
Companies Mentioned in This Article:
|Company||Current Price||Price Change||Dividend Yield||P/E Ratio||Consensus Rating||Consensus Price Target|
|Hormel Foods (HRL)||$49.11||-0.6%||2.12%||26.84||Hold||$48.00|