Dividend Increase: Hormel Foods (HRL)

For 2017, Hormel Foods (HRL) has announced their impressive 51st straight year of a dividend increase.  What’s also impressive is that after 51 straight increases and being in business for almost 100 years, 2017 brings shareholders a healthy 17.24% increase, raising the dividend to $0.17 vs $0.145 per share quarterly.  The current dividend yield for HRL is at 1.95%.  This increase blew past my expectation for the year of a $0.02 or a 13.79% increase.

Pretty amazing stuff coming from a boring food company known for SPAM and its tasty chili products.

Dividend History:

Looking back at the last 13 years, HRL has grown it’s dividend an average of 16.60% per year.  The competition isn’t even close to that dividend growth rate.  What’s even more mind blowing, being a shareholder during that time frame, you would have seen your dividend income increase from $0.1124 to $0.68 annually, that translates to just over a 500% increase in your income in 13 years.  To put that in perspective, imagine your annual pay at work increasing like that…you might actually like your job.

For 2018, I’m holding my expectation of a$0.02 increase.  This translates to an 11.76% increase.

While the dividend yield and amount are not high, that sustained level of growth creates a great opportunity for building an impressive yield on cost down the road.

Company Data:

Market Cap: $18.45 Billion

Dividend Yield: 1.95%

Payout Ratio: 36.36%

Revenue: $9.52 Billion

Cash: $415 Million

Total Debt: $250 Million

PE Ratio: 21.26

Let’s get the obvious out of the way.  This dividend is safe.  That payout ratio of 36% allows plenty of room for future strong growth of the dividend as well.  I love the low debt on the balance sheet, on top of the fact they have more cash to cover that debt.  Even issuing a little more debt at todays current low rates would not concern me.

Performance vs S&P500

What’s a safe and growing dividend without share price appreciation…

hrl-vs-sp500

Well, going back a decade it’s not even close.  HRL crushes the S&P500.  You’re looking at about 250% vs 50% return.  That is even taking into account a recent big pullback on HRL, which I used to add to my position.

Conclusion:

I guess I’m not the only one who likes SPAM.  HRL has rewarded shareholders with not only an impressive growing dividend rate, but amazing capital appreciation as well.  All this coming from a boring food company not getting any attention.  I still stand by my belief of M&A  eventually taking place in the grocery store aisles.  The larger slower growth companies will want to try to accelerate their growth, and a company like HRL would be a nice addition to their portfolio.  So, I still think there is future opportunity still left with this exciting snoozer.

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