Title: My Least Profitable Stock Pick Yet, Still a Treasured Investment
Looking at my brokerage account, one stock that catches my eye for its lackluster performance is Hormel Foods (-1.76%). Despite this, I haven't considered selling it off yet. Here's why I still hold onto Hormel, even as its performance falls short.
A Company with a Solid Core Business
Even established companies encounter challenging times. My investment strategy revolves around identifying such "fallen angels." Hormel, for instance, is a leader in 40 retail categories, holding the No. 1 or No. 2 position in numerous categories. Brands under its umbrella include Hormel, SPAM, Planters, and Skippy, to name a few. Its impressive focus on innovation has kept its brands relevant by introducing new and improved versions. In fact, Hormel estimates that innovation boosted net sales by 1.4% YoY in fiscal 2024.
Regardless of its current circumstances, Hormel consistently strives to excel. This commitment to improvement ensures that my overall perspective on the company remains unchanged.
The Reward for Hanging in There
My decision to invest in Hormel was partly driven by its high dividend yield, which has grown since my initial purchase. With a yield of 3.6% today, Hormel is not only on par but also surpasses its earlier dividend yield. Furthermore, this iconic company has raised its dividend annually for an impressive 59 consecutive years, a testament to its financial stability and enduring success.
Recently, Hormel announced a moderate dividend increase of approximately 2.5%. While this represents a decline from its 10-year average of 11%, given its current challenges, it's understandable. Nevertheless, with headwinds such as inflationary pressures, avian flu, a sluggish Planters business, and a slow pandemic recovery in China, it's remarkable that the company still maintains its commitment to increasing the dividend.
A Unique Advantage – The Hormel Foundation
Hormel's unparalleled advantage comes in the form of The Hormel Foundation. Founded by the company's creators to support both local communities and maintain Hormel's independence, the foundation currently holds nearly 47% of Hormel stock. This stake in the company can be interpreted as a guarantee that Hormel will remain independent in the long term. More importantly, the foundation utilizes its dividend earnings for philanthropic purposes. This focus on supporting the dividend while enhancing the community's well-being aligns with my investment objectives and strengthens my position as a Hormel shareholder.
The Short-Term Obsession vs. Long-Term Focus
Wall Street's focus on short-term gains contrasts dramatically with Hormel's long-term vision. As a long-term investor, I appreciate Hormel's dedication to executing its tried-and-true tactics despite facing challenges. Take, for example, Kraft Heinz, another food manufacturer that is also facing setbacks.
Unlike Hormel, Kraft Heinz merged with two other companies, aiming to drive improvements through cost reduction. This strategy failed to materialize, prompting Kraft Heinz to adopt a new approach focused on owning leading brands and investing heavily in them. This transformation has faced its own challenges, leading to a dividend cut.
Given Hormel's and Kraft Heinz's similar market valuations, I prefer the long-term potential and consistent dividend increases offered by Hormel, the Dividend King. The frustration of holding onto a currently underperforming stock is a common aspect of long-term investing, but it often leads to generous rewards down the line.
Despite the temporary dip in Hormel Foods' stock price, I see it as an opportunity for long-term investing in finance. Given its robust innovation and solid core business, the company continues to boost net sales through new product introductions, as shown by the 1.4% YoY increase in fiscal 2024.
Moreover, Hormel's commitment to paying dividends consistently, with a 59-year increase record, provides a stable income source, making it an attractive investment option in the realm of money management.
