Investment Opportunity: Dividend-Yielding Stock Plummets by 45%, Worth Considering Immediately.
Investment Opportunity: Dividend-Yielding Stock Plummets by 45%, Worth Considering Immediately.
Generally speaking, finding top-tier companies performing at their peak while also offering discounted stocks is uncommon. Typically, reduced-priced stocks signify struggling companies, often labeled as 'fallen angels.' These are businesses that, due to temporary difficulties, have experienced a decline in value. However, smart investment strategies involve identifying and purchasing these fallen angels that display potential for regaining their former glory.
Right now, we're discussing Hormel Foods (symbol: HRL, -0.59%).
Reasons to appreciate Hormel
If you seek dividend growth stocks, just giving it a glance, Hormel's position as a Dividend Aristocrat is evident. It has successfully hiked its dividend for an astonishing 58 consecutive years! Maintaining such a record speaks volumes about the company's sustained success. Moreover, the annualized dividend growth rate for the past decade exceeded a substantial 11%, surpassing the historical inflation growth rate threefold. This signifies that the purchasing power of Hormel's dividends has been consistently increasing over time.
Currently, Hormel's dividend yield stands around 3.7%. In comparison, the yield provided by an S&P 500 index fund is only 1.2%, and the average yield offered by consumer staples stocks like the Consumer Staples Select Sector SPDR is 2.6%. Even more impressively, Hormel's yield stands near its highest levels in its recent history.
Hormel's operations focus on dominant brands, predominantly centered around protein. Well-known names such as Hormel, SPAM, Skippy, Planters, Applegate, Jennie-O, and Columbus are joined by less familiar brands but still popular, like Wholly Guacamole and Herdez. In the background, Hormel maintains a strong foothold in food service, offering pre-cooked meat products and has begun expanding overseas. Overall, there's much to anticipate from Hormel.
Reasons to criticize Hormel
Obviously, a company boasting a high yield for so long must be facing some challenges. Hormel's current business structure appeals to investors, but unfortunately, it's not functioning at full capacity now. In the third quarter, the company's adjusted earnings decreased by 8%, sales fell by 2%, and its product volume dropped by 7%. Such figures rarely bring cheer to shareholders and mark a resurgence of underperformance.
As a result, Hormel's stock price has dropped around 45% compared to its previous five-year high. A myriad of issues have contributed to this downfall, including trouble overcoming expense-related price increases, a gradual COVID-19 recovery in China, the avian flu, and a slowdown in the nut category of the snack market (which coincided with the acquisition of Planters). While each issue can be addressed, facing them all simultaneously can be challenging.
Nevertheless, Hormel is making proactive moves, focusing on cutting costs and emphasizing innovation, which is one of its historical strengths. The ultimate goal is to rejoin the growth trajectory, which appears to be a realistic objective, given the company's successful past. However, progress may take some time, and in the interim, growth and dividend growth may remain rather underwhelming.
In summary...
Hardships are an inevitable part of a company's life cycle. When such difficulties arise, they often provide investors with a unique window of opportunity to buy shares. If you invest with a long-term perspective, disregarding short-term fluctuations, Hormel seems to be offering attractive discounts right now. Time may prolong these discounts, but forfeiting such an opportunity to purchase a Dividend Aristocrat with above-average yields and a proven track record of rapid dividend growth could be regrettable.
In the context of investing and finance, smart strategies often involve purchasing struggling companies, or 'fallen angels,' that display potential for recovery, like Hormel Foods. Despite facing challenges, such as a 8% decrease in adjusted earnings and a 2% drop in sales, Hormel's discounted stock price presents an opportunity for long-term investors seeking high yield and rapid dividend growth.