Hormel Dividend Metrics, Stock Valuation, and Business Review
Let’s take a close look at the Hormel stock dividend today.
By working through a Hormel Foods dividend stock analysis. Without delay, I would like to kick it off with a few key takeaways.
Disclosure: At no cost to you, I may get commissions for purchases made through links in this post.
Hormel Stock Dividend Review: Key Takeaways
1. Packaged food sector stocks have traditionally been a good place to hunt for dividends. But, the industry has met with its fair share of challenges in recent years.
2. Hormel had bucked many of those challenges until recently. Because the global health crisis reduced demand from food service customers. And required increased safety and sanitation costs.
3. Hormel stock has a relatively low dividend yield, strong historical dividend growth, and the stock is a Dividend King sporting very safe and secure recurring dividends.
4. Finally, HRL stock appears overvalued at recent prices. But remains a good buy and hold dividend growth stock. And a strong candidate for purchases on any dips in the price, for long-term investors.
With those highlights taken care of, let’s touch on where Hormel sits in my portfolio. Since that may give you some insight on how it can fit into yours.
Then, I a few thoughts about dividends from the packaged food industry. Before we deep dive into the Hormel dividend, business fundamentals, and stock valuation.
Or, perhaps you are looking for other articles to level up your dividend investing game? Then be sure to check out our library of dividend investing content. It’s nicely organized so you can quickly find what interests you.
Othewise, stay right here. Because it’s time for Hormel…
Hormel Foods Stock And The Hormel Dividend
A few years ago, I went on a search for better investment ideas in the food sector. And I landed on Hormel Foods stock because the Hormel dividend metrics looked solid to me.
I have held many of my other dividend growth stocks for nearly 20 years. On the other hand, Hormel is one of my newest additions.
Due to its recency, the company holds one of the smallest positions in my dividend stock investment portfolio. But, I would love to add to the position when the price and dividend metrics look right.
I’m able to draw these conclusions because I manage my total financial picture with Personal Capital. It’s easy to use, and best of all it’s free. So, if you are looking for a good online, all-around personal finance tool, Personal Capital may be right for you too.
Now, a few thoughts on food sector stocks that pay dividends…
Food Sector Stocks For Dividends
Investing in food sector stocks has been challenging in recent years. Especially for dividend growth stock investors like you and me.
First of all, in 2018, General Mills bought pet food maker Blue Buffalo. And they promptly froze their dividend to help fund the acquisition.
Furthermore, in 2019, Kraft Heinz cut its dividend by a whopping 36%. The CEO said profit shortfalls and the need to improve the company’s financial position were to blame.
Finally, due to the events of 2020, these companies got a boost. Why? Because of increased at-home meal preparation. And a return to older and trusted food brands.
No one knows for sure what the trends will be going forward. But, I do know that frozen and reduced dividends do not equate to steady dividend income or dividend growth.
On the other hand, the packaged food sector has historically been known for paying consistent dividends. And having substantial dividend yields and solid dividend growth. But those characteristics are no longer universally true.
Until 2020, the sector was pressured for growth due to a variety of reasons. For example:
- Changing consumer preferences
- Omnichannel retail shopping experiences
- The need for continual innovation
- And competition from private label products
These trends may have reversed for the time being. But, I would guess they will continue over the long run.
That’s enough about the industry in which Hormel operates. Next up, a brief review of Hormel and its products…
Hormel Foods Company Background
Hormel Foods is a Fortune 500 company that manufactures and markets high-quality, brand-name food and meat products. Their brands number more than 50.
Chances are you have consumed one or more of their products as part of a meal or snack. Here are just a few of those brand names you might recognize.
- Dinty Moore
- Lloyd’s Barbeque
- Staff Chili
- Wholly Guacamole
Hormel Food’s brands hold the number 1 or number 2 market share in more than 35 categories. Furthermore, Hormel pepperoni is the leading brand of pepperoni in retail grocery stores.
Finally, another fun fact. More than 90 million jars of Skippy peanut butter are produced annually.
Source: Hormel Foods Website – Brands
Hormel Foods Profit Growth Strategy
We will get to Hormel dividend growth in a moment. I know it will come from growing profits.
So, we should understand the primary elements of Hormel’s growth strategy. They are to:
- Invest in brand spending to support organic sales growth
- Realize sales growth and cost synergies from targeted brand acquisitions
- Reduce costs across the supply chain
In addition, Hormel has a significant opportunity to expand its business investments outside of the U.S. As a relatively small percentage of the total revenues are from outside the United States.
Hormel Stock Symbol
Finally, Hormel’s stock trades on the New York Stock exchange. It trades using the stock symbol HRL (NYSE: HRL).
When I trade stocks, I use the Webull app. It’s fast, easy to use, and best of all, free.
So, we have covered some background in food sector stocks. And have a grasp on Hormel’s business and products.
That means it’s time for the Hormel dividend review. Specifically, the metrics, measures, and everything there is to know as a dividend investor.
Does Hormel Pay Dividends?
Yes. Of course Hormel Foods stock pays dividends. I wouldn’t own the stock if it did not.
Hormel Dividend Rate Per Share
The Hormel dividend rate per share is $.98 on an annual forward basis.
What does annual forward dividend mean? Simply the last dividend approved by the company’s board of directors. Multiplied by the number of times Hormel pays dividends each year.
Hormel Dividend Yield
Based on the recent stock price and the annual forward dividend rate per share we have a Hormel dividend yield of 2.1%.
The stock’s yield is a little low. As regular readers know, I prefer higher dividend yields from stocks. Defined as between 3% and 5%.
The Hormel stock dividend has historically fallen below my target range. That is the primary reason why it has not been a long-term holding in my dividend growth stock portfolio.
So why did I invest in Hormel stock? Let’s discuss…
Hormel Dividend Yield Vs. Safety Vs. Growth Rate
Sometimes rules are made to be broken. I would rather have a lower dividend that is very safe. Rather than a higher dividend yield that is at risk of being reduced or frozen.
I mentioned earlier that Kraft Heinz reduced its dividend in 2019. Dividend reductions are no fun for us dividend stock investors.
However, when the dividend yield is this low, I want to see the dividend increase rapidly each year. 7-9% is my minimum expectation.
We will get to the Hormel dividend growth rate in a moment. Let’s cover a few more facts about the Hormel dividend first.
How Often Does Hormel Pay Dividends?
Hormel stock pays its dividend every 3 months or 4 times per year. Each quarterly dividend payment is 24.5 cents per share.
When Does Hormel Stock Pay Dividends?
Upcoming dividends from Hormel are paid in these months: February, May, August, and November.
During the months indicated, the dividend is paid on or around the 15th day.
When Is Hormel’s Ex-Dividend Date?
Are you a potential new shareholder or one looking to make an add-on buy? Then you may want to receive the next Hormel dividend payment. To do so, you must complete your investment BEFORE the ex-dividend date.
Hormel’s ex-dividend date falls on or around the 10th day of the month PRIOR to when its dividend is paid.
For all companies, dividends are subject to the approval of their board of directors. As a result, the timing of both the ex-date and the payable date changes slightly each time a dividend is paid.
So, check the company’s investor relations website if the exact dates are important to you. But this discussion should give you a general feel for the timing.
On the other hand, you can be a long-term buy and hold dividend stock investor, like me. In that case, you will be sure to receive every dividend that Hormel pays. Then there is little need to think about these dates.
Next up, let’s look at Hormel’s dividend history. Because it is really impressive.
Hormel Dividend History
Dividends are important to this company. And they are proud of their dividend history. And should be.
Because Hormel has paid a dividend every quarter since it became a public company in 1928. Furthermore, the annual dividend rate has been increased every year since 1967.
Hormel Is A Dividend King!
This impressive record of consecutive annual dividend increases put Hormel firmly into the category of Dividend King. Dividend Kings are those rare companies that have increased their dividends annually for at least 50 years in a row.
Looking for more good Dividend Kings? Then how about considering Coke (KO) for your investment portfolio? Certainly, a refreshing Coca-Cola would go well with a bowl of Hormel chili!
Hormel Dividend Policy
As far as I can tell, Hormel Food’s management does not communicate targets or guidance about its dividend.
Being a Dividend King, I expect the dividend to continue growing each year in the future. And I have little concern about the lack of a publicly communicated dividend policy.
Next, let’s see how fast the Hormel dividend has grown in recent years. Because we need good dividend growth. To compensate for the lower dividend yield.
Hormel Stock Dividend Growth Rate
The table below shows that Hormel is an investment where dividend appreciation has been impressive.
Table 1: Hormel Compound Annual Dividend Growth Rate
|1 Year||3 Years||5 Years||7 Years|
With only a 2% dividend yield I like to see annual dividend growth of at least 7%.
And Hormel does not disappoint. If you need your dividends for living expenses, dividend growth like this more than offsets inflation.
Latest Hormel Dividend Increase
On the other hand, I was a little disappointed in Hormel’s last dividend increase. It came in well below the past trend, at just 5.4%.
Let’s look at the business fundamentals next to see what we can learn. Maybe they will indicate why Hormel’s dividend growth might be slowing. We will start with revenues…
Hormel Foods Revenue Trend
Revenue growth has been modest, expanding at less than 2% annually. Within the numbers, there has been a recent shift toward the retail grocery business. And away from restaurant and institutional volumes. This type of business is referred to as “food service”.
Most importantly, Hormel has done an excellent job of reducing revenue exposure to the lower growth areas in packaged foods and beverages.
Chart 1: Hormel Stock Analysis: Revenue Trend
Let’s peel back the revenue numbers a little more…
First of all, most of the categories in which Hormel operates are “on-trend”. They are in areas where consumers are increasing their consumption of proteins, fresh foods, and on-the-go snacks and meals.
Furthermore, a limited amount of revenue comes from shelf-stable foods. You know those foods in the middle of the grocery store that more and more people were avoiding prior to 2020.
Finally, an even lower amount of business is in commodity meat. This consists primarily of pork and turkey.
To sum up, Hormel has done a good job providing value-added, differentiated brands, and products for consumers. These areas have demonstrated pricing power over the long term.
Now on to earnings, cash flows, and dividends…
Hormel Dividend Payout Ratio Based On Earnings
This company’s earnings have grown nicely, at almost 8% per year over the 7 year period. With relatively small revenue growth, it is clear that Hormel has done a good job increasing sales prices and reducing operating costs to expand their profit margins.
Chart 2: Hormel Dividends & Earnings Per Share
On the other hand, over the last 3-years earnings growth has stalled out. And dividend growth has surpassed earnings growth. This has resulted in a rising dividend payout ratio.
Plus we had an earnings drop in 2020 versus the prior year. Mainly due to higher pandemic safety and sanitation-related costs.
Based on accounting earnings, the Hormel dividend payout ratio checks in at a still very safe 55%. For comparison, a decade ago the HRL stock dividend payout ratio was less than 30%.
I suspect the drop in earnings. And the corresponding rise in the dividend payout ratio. Both had a lot to do with the lower dividend increase most recently announced.
Hormel Stock Dividend Payout Ratio Based On Cash Flow
Dividends are paid from cash, not accounting earnings. So, I like to cross-check dividends paid against free cash flow.
Chart 3: Hormel Dividends Versus Cash Flows
Over the past 3 years, Hormel has paid out 57% of its available cash to shareholders in the form of dividends.
The remaining available cash flow has been used to either repurchase Hormel stock. Or, increase the company’s cash position on the balance sheet.
Okay, we have looked at the dividend information. And the business fundamentals. So, I have enough to go on to make a dividend growth forecast…
Hormel Dividend Growth Rate Forecast
I do not see the Hormel dividend growing as fast as it has in recent years. Here are my thoughts…
First of all, Hormel should be able to generate 2-3% annual revenue growth.
Furthermore, price increases, cost savings, and share repurchases will add an additional 4%-5% to earnings.
Putting the prior 2 pieces together, I expect earnings per share to grow 6-8% annually. While company management holds the line on any further increases to the dividend payout ratio.
This brings me to a 6%-8% annual dividend growth rate for future years. Right in line with my projection for earnings growth.
This appears to be safe and sustainable. And also maintains the dividend payout ratios at or below current levels.
Let’s look at the company’s financial position next. Then I can draw a conclusion about dividend safety.
Hormel Financial Position
Hormel has an outstanding credit rating and a very solid balance sheet. Let’s look at each individually.
Hormel’s Credit Rating
Moody’s and S&P rate Hormel A1 and A, respectively.
As shown in the table below, these represent investment grade-low credit risk evaluations. This is exactly what I would expect from a Dividend King.
And in case you didn’t know. You can check YOUR personal credit score for free. Using Credit Karma.
Table 2: Credit Rating Evaluation Grid
Hormel Balance Sheet: Debt To Equity
I judge the balance sheet based on capital structure. Specifically, debt to equity. Secure dividends from good dividend stocks should not be loaded with debt.
And the good news is Hormel’s debt to equity checks in at an exceptionally low level. Debt is only .2 times equity.
Furthermore, the company has enough cash on hand. To pay off all its debt in the unlikely event management chose to do so.
So, based on Hormel’s credit ratings, debt levels, and cash holdings. They have a rock-solid financial position. Leading us to dividend safety…
Hormel Dividend Safety
Putting together several of the facts we have discussed thus far, I can make a pretty good judgment about Hormel dividend safety. To do so, I consider the following:
- Business fundamentals and prospects
- Dividend yield
- Payout ratios
- Dividend history
- Financial position
Based on the combination of these factors, I judge the Hormel dividend to be very safe from a reduction for the foreseeable future.
Our Hormel stock analysis would not be complete without a look at valuation. So, let’s do that next. Then wrap up.
Hormel Stock Valuation
We will look at HRL stock valuation in several ways:
- Dividend Discount Model
- Price to earnings ratio
- Morningstar fair value estimate
- Simply Investing Report
Hormel Dividend Discount Model
Let’s use a dividend model know as the Gordon Growth Model (GGM).
This single-stage dividend discount model popularized by Myron Gordon considers several factors I have discussed thus far.
- The current annual dividend payment
- Projected annual dividend growth
And one thing we have not discussed. My desired return on investment for Hormel stock of 10%
Using these assumptions, the dividend discount model suggests a fair value of $35 per share for HRL stock.
Morningstar Fair Value Of Hormel Stock
The investment analysis firm Morningstar believes Hormel stock is fairly valued at $34.5 per share.
I have used Morningstar for many years to supplement my stock research. I also use Simply Investing. It’s full of good dividend stock analysis and recommendations.
Simply Investing Report
The Simply Investing report makes a value call based on some tough criteria. Specifically:
- Price to earnings ratio
- Current dividend yield higher than its historical average
- Price to book ratio at 3 or less
Based on these measures, Simply Investing considers Hormel stock to be undervalued.
Hormel Stock Price to Earnings Ratio
The HRL stock price to fiscal 2020 earnings is 28 times. Hormel stock looks expensive on this basis.
But, quality dividend growth stocks can rarely be bought at a discounted price to earnings ratio. Especially those with very safe dividends, like Hormel.
Hormel stock frequently trades with a price to earnings ratio in the mid-’20s. But, the high 20s starts to push my tolerance for a slow-growing business.
In this regard, HRL stock reminds me of another super high-quality dividend growth stock, ADP.
Thoughts On Hormel Stock Valuation
3 of the 4 stock valuation measures make Hormel stock look overvalued to me. With only the Simply Investing report being the clear exception.
For my purposes, I’d only be a buyer on dips in the stock price. But, I’m more than happy to hold the shares I own.
Even with an elevated valuation, Hormel is a great stock to buy and hold in your IRA for the long run. And M1 Finance has a great investment app if you are interested in an IRA and don’t already have one.
Hormel Foods Stock Analysis Conclusions And Wrap Up
Hormel Foods is a very well-run company. They have an excellent stable of brands. And have navigated the challenges facing many large food companies.
The Hormel stock dividend is very safe, but the stock’s dividend yield is on the low side at about 2%. However, dividend growth should compensate and be consistent for years to come.
On the other hand, Hormel stock looks overvalued. But, I would like to buy more on any price dips. And make this quality dividend growth stock a bigger part of my investment portfolio.
Further Reading About Dividend Stocks And Dividend Investing
- 5 high growth dividend stocks for an increasing income stream
- How to pick dividend stocks
- A long-time favorite consumer goods dividend stock
- Read my review about the Simply Investing report
My Favorite Dividend Investing & Finance Resources
- Trade stocks for free with the Webull app
- Get stock research from Morningstar
- Money and investment management using the M1 Finance app
- Or dividend stock recommendations from Simply Investing
- Manage your finances for free with Personal Capital
- And check your credit score for free too!
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