One of the stocks I’ve been watching over the past few weeks is Hormel Foods. $33.66/Share as of 8/8/17. The main reason this stock is on my radar is because its a member of the Dividend Aristocrats group. A Dividend Aristocrat is any company listed on the S&P 500, that has paid AND raised their dividends for 25+ consecutive years. In-fact, Hormel has increased their dividend for 50 years, since 1967. On top of that, their dividend has more than doubled in just the last 5 years.
When a company shows that is has interest in increasing its dividend, (cash paid back to shareholders for holding shares.) it means they are dedicated to and care about their investors.
Right now, the shares of Hormel aren’t exactly cheap. Hormel Foods (HRL) has a P/E ratio of 20.8. Which is the “cheapest” it’s been in 4 years.
A basic, yet typical, way to measure how expensive a stock is, is by it’s P/E ratio. (Price/Earnings) You can compare most stocks to the current P/E ratio of the entire S&P for instance, which is currently around 24.6. So theoretically if a stock’s P/E is below 24.6, it could be considered cheap.
Another reason I’ve added this pick to my watch list is the fact that it’s also -6.00% below its price 52 months ago. It looks like this stock has found a bottom finally, but obviously only time will tell. No one ever knows when the bottom will be reached, but
A third reason for keeping an eye on HRL, its long-term debt levels are low enough to be handled over the long term. Hormel only has $250 million in long term debt with over 1 billion in revenue per year, so unless a cataclysmic event occurs or people stop going to grocery stores, I expect this debt to be completely manageable.
A forth reason, GIS (General Mills) saw a large drop after reports that consumers are shifting away from yogurts and cereals in search of “healthier” options. I believe that this uncertainty also hurt HRL as they have a strong focus on canned & pre-packaged foods. But, on the other side of the coin. Hormel has been aggressively acquiring smaller start-up type companies such as; Wholly Guacamole, Applegate deli meats, MuscleMilk, Skippy’s Peanut Butter and as of last year, Justin’s, an organic nut-butter company. The ability to acquire these companies all while maintaining healthy debt levels shows very good management at the helm of this ship and I expect it to be steered to higher highs in the next 2-5 years if it can maintain low debt and continue to acquire companies to build a wider moat and shift with new consumer trends.
The current payout ratio for it’s dividend is at 41%, meaning it still has room to grow the dividend in the future without affecting much on their bottom line.
Current Dividend Yield: 2.02% Payout Ratio: 41%
*I do not currently own any shares of HRL.