Hormel Foods Corp (HRL) Dividend Stock Analysis

A 16% growth in distributions translates into the dividend payment doubling (2) almost every four and a half years. If we look at historical data, going as far back as 1992 we see that Hormel has actually managed to double its dividend every six years on average.

The dividend payout ratio increased from 28% in 2007 to 35% in 2016. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

The largest shareholder is the Hormel Foundation. The Hormel Foundation holds 48% of Hormel’s stock and has the majority of its assets in Hormel Foods Corp (NYSE:HRL). The Hormel Foundation generates $174 million in annual dividend income from their Hormel investment. The cost basis is $35 million dollars. This is a nice yield on cost of 397%.

This is the third company I have analyzed, where a foundation holds a large block of the stock in a quality dividend paying company for decades. The company’s business model is stable, and it tends to deliver growing dividends to its shareholders. Foundations like the Hormel Foundation, Hershey Trust and Kellogg Foundation (NYSE:K) are long-term endowments which have been “living off dividends” for decades, and have not run out of money.

In other words, these foundations have been “retired” for quite some time. Future retirees should learn this model, and try to apply it toward their retirement planning. The secret sauce is buying into companies with stable business models that are not subject to rapid changes in the industry. These are the companies that tend to deliver dependable and growing dividend income for generations of their investors to live on.

Currently, Hormel Foods Corp (NYSE:HRL) is slightly overvalued (3) 21 times forward earnings, has an adequately covered dividend and yields 1.90%. The stock would be a better value on dips below $34/share.

Full Disclosure: Long SJM, GIS, K, HSY

Additional Links:

(1) http://www.dividendgrowthinvestor.com/2016/11/six-dividend-stocks-sending-more-cash.html

(2) http://www.dividendgrowthinvestor.com/2008/09/rule-of-72.html

(3) http://www.dividendgrowthinvestor.com/2015/06/how-to-value-dividend-stocks.html