Hormel's Dividend Growth Makes It A Standout Investment

Summary

• Hormel is a Dividend King which has seen significant dividend growth.
• The firm's strong brands and recent acquisitions make it likely to continue being profitable.
• It is trading at a discount at this time.

Hormel Foods Corporation (NYSE:HRL) is a Dividend King - a stock which has paid consecutively rising dividends for 50+ years. Specifically, Hormel became a Dividend King this year, as the diversified food firm has paid consecutively rising dividends to its shareholders since 1967, and took its place alongside stocks such as Johnson & Johnson (JNJ) and Procter & Gamble (PG).

Notable enough as that dividend record is, what makes Hormel stand out is the growth of its dividend. Its dividend growth rate for 2012-2016 was an impressive 17.04%.

Year	Dividend Per Share ($)
2012	0.30
2013	0.33
2014	0.39
2015	0.48
2016	0.56

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Furthermore, Hormel's revenue and net income figures suggest that the dividend will continue to be well supported going forward.

Year	Revenue ($)	Net Income ($)
2012	8.23 billion	500.05 million
2013	8.75 billion	526.21 million
2014	9.32 billion	602.68 million
2015	9.26 billion	686.09 million
2016	9.52 billion	890.05 million

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Hormel has been able to sustain its dividend record and be a profitable company due to its very diverse portfolio of strong food brands. Household names such as Dinty Moore, Jennie-O, Lloyd's, Skippy and SPAM account for the healthy income that Hormel generates.

Furthermore, Hormel is not complacent with respect to this portfolio. Its focus in recent years has been to complement its refrigerated foods with natural foods and organic foods and thus further diversify its offerings. To this end, Hormel has made several acquisitions: In 2014, it acquired CytoSport Holdings Inc., the nutritional products firm which makes Muscle Milk, for $450 million; in 2015, it purchased organic processed meat maker Applegate Farms for $775 million; and in 2016, it acquired nut-butter producer Justin's for an undisclosed sum. Such acquisitions add breadth and depth to Hormel's already impressive food portfolio.

So, as an established consumer goods firm with an excellent dividend track record, impressive growth and profitability, and a sizable product portfolio, Hormel seems like a no-brainer of a purchase. The question is, is Hormel a buy at this time?

Currently, Hormel is trading in the mid-$30 range with a price-to-earnings ratio of 20.82, a forward P/E ratio of 19.90, and offers a dividend yield of 1.99% with a payout ratio 36.10%, which is low enough to guarantee future dividend raises. Both the P/E ratio and forward P/E ratio are lower than Hormel's five-year average P/E ratio of 22.8, and the current dividend yield is higher than Hormel's five-year average yield of 1.58%.

Given that, in addition to its own metrics, Hormel is also trading at a discount to both the food products industry average of 30.60 and the S&P 500 (SPY) average of 25.75; now seems as good a time as any to start a position with this excellent Dividend King.

DISCLAIMER: The author is not a financial professional and accepts no responsibility for any investment decisions a reader makes. This article is presented for information purposes only. Furthermore, the figures cited are the product of the author's own research and may differ from those of other analysts. Always do your own due diligence when researching prospective investments.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.