Hormel Foods Corp (NYSE:HRL): A Reliable Dividend Stock with Strong Financial Health

Hormel Foods Corp (NYSE:HRL) appears as a possible choice for dividend investors after meeting a strict screening process intended to find high-quality dividend-paying stocks. The screening approach centers on three main factors: a good ChartMill Dividend Rating (7 or higher), reasonable profitability (ChartMill Profitability Rating ≥5), and stable financial health (ChartMill Health Rating ≥5). These standards help exclude companies with unreliable payouts, poor earnings, or financial risks, common issues in dividend investing.

Dividend Strength: A Steady Payout with Potential for Increase

Hormel’s dividend profile is notable for its reliability and growth prospects, important for income-focused investors:

• Good Yield: At 3.96%, HRL’s yield is higher than the S&P 500 average (2.35%) and compares well within its industry, where it does better than 81% of similar companies. While not the highest yield, it offers a mix of income and stability.
• History: The company has raised its dividend for at least 10 straight years, showing a dedication to sharing profits with shareholders even during economic changes.
• Growth Pace: Hormel’s dividend has increased at an average rate of 6.53% over the last five years, indicating management’s belief in future cash flow.

However, the fundamental analysis report highlights two concerns: a high payout ratio (83.5% of earnings) and slower earnings growth, which might limit future dividend increases if not improved. Investors should watch for faster earnings growth to support the payout.

Profitability: Steady but with Margin Challenges

Hormel’s profitability measures, while not outstanding, meet the screen’s requirements for dependability:

• Margins: The company maintains solid operating (8.38%) and profit (6.27%) margins, doing better than 71% and 76% of industry peers, respectively. However, margins have dropped recently, a trend management must address to keep dividend growth going.
• Returns on Capital: HRL’s ROIC (6.44%) and ROE (9.31%) are average but above the industry median, showing effective use of capital.

Financial Health: A Strong Balance Sheet

Hormel’s financial stability is a key advantage, lowering the chance of dividend cuts during tough times:

• Low Debt: A debt-to-equity ratio of 0.35 is cautious and below industry averages, offering flexibility.
• Liquidity: Strong current (2.47) and quick (1.17) ratios mean short-term bills can be paid easily.
• Solvency: An Altman-Z score of 3.83 suggests very low bankruptcy risk, a positive sign for long-term investors.

Valuation: Fairly Valued with a Dividend Edge

Hormel trades at a P/E of 18.87, slightly below its industry (37.0) and the S&P 500 (26.8). Its forward P/E of 15.4 implies modest earnings growth is expected. While not cheap, the stock’s price seems fair given its dividend track record.

Final Thoughts

Hormel Foods meets the dividend investor’s criteria: a decent yield, a record of growth, and a strong balance sheet. Its challenges—shrinking margins and a high payout ratio—are balanced by its stable business (food products) and consistent performance. For those looking for reliable income with some growth, HRL is worth considering.

Find More Dividend Options: For other screened dividend stocks, check the full Best Dividend Stocks screener results.

Disclaimer: This article is not investment advice. Always do your own research or talk to a financial advisor before making investment decisions.