Hormel Foods Corp. (NYSE:HRL): A High-Yield Dividend Stock Built for Steadiness

For investors looking for steady income, a methodical filtering process can find companies that provide more than a high current yield. One useful technique is to sort for stocks that join a good dividend history with firm basic business strength and earnings. This method tries to sidestep the dangers of high-yield mistakes—firms where large payments might not continue because of weakening business conditions. Instead, it centers on businesses with the financial strength to keep and possibly raise their dividends through the years.

Hormel Foods Corp. (NYSE:HRL), the Minnesota-based global food company known for brands like SPAM, Skippy, and Applegate, recently appeared from such a filter. It was found using rules that emphasize a high ChartMill Dividend Rating while also demanding minimum grades for earnings and financial soundness. This pairing is important; a high dividend rating by itself could highlight a company distributing unsustainably high income, but adding examinations for earnings and soundness helps confirm the dividend is supported by a workable, steady business.

Dividend Attraction: A Steady Payer with a Good Yield

The center of the investment case for HRL rests in its dividend traits, which grade a 7 out of 10 on the ChartMill Dividend Rating. For income-oriented investors, a few measures are notable:

• Considerable Yield: The stock now provides a yearly dividend yield of 4.73%. This is over two times the average yield of similar companies (2.28%) and notably above the S&P 500 average of about 1.85%.
• Long History: Steadiness is important in dividend investing. Hormel Foods has both paid a dividend for at least ten years and has not reduced it in that time. This extended record of dependable payments offers assurance for investors relying on regular income.
• Steady, Regular Increase: The dividend has increased at a yearly rate of about 4.90% over the last five years. While not rapid, this consistent rise helps counter inflation and boosts an investor's actual yield on cost over time.

A closer examination of the full fundamental analysis report gives needed background. The report states that the dividend's increase rate is about equal to the company's earnings increase, which is a good signal for continuity. However, it also notes a present payout ratio above 130%, showing the company is distributing more than its net income. This is a detail for investors to watch, as a payout ratio this elevated can be hard to maintain long-term without an increase in earnings or the use of cash savings.

Supporting Business Conditions: Earnings and Financial Soundness

The filtering process intentionally examines more than the dividend, and HRL's grades in earnings and soundness clarify why it met the criteria. These aspects are important because they constitute the source that finances the dividend.

Hormel gets a middle earnings rating of 5. The examination reveals a varied situation: the company's profit margin (3.95%) and operating margin (7.94%) are in fact superior to many industry rivals. However, all key margins—gross, operating, and profit—have been falling in recent years. This pattern shows the competitive forces and cost increase difficulties in the packaged food industry. Despite these obstacles, the company stays profitable, which is the basic need for continuing dividend distributions.

The financial soundness rating is also a middle 5. Here, the balance sheet displays clear positives that aid dividend endurance:

• Good Liquidity: A current ratio of 2.47 shows the company has ample short-term assets to meet its short-term obligations, doing better than over 70% of its industry.
• Reasonable Debt: A debt-to-equity ratio of 0.36 implies Hormel is not excessively dependent on debt funding. Also, its Altman-Z score of 3.56 indicates a low short-term chance of financial trouble.

These soundness measures are important for dividend investors. A good liquidity situation means the company can readily fulfill its coming dividend payments, while a careful debt level gives room to handle economic slowdowns without threatening the payout.

Price and Increase Factors

From a strict dividend view, price is often less important than yield and security. Still, it is a component for overall return. HRL's price rating is a 3, suggesting it seems costly on certain measures. Its P/E ratio of 17.68 matches the industry average but seems good compared to the wider S&P 500. The more notable point in the report is the high PEG ratio, which implies the stock's price is not sufficiently justified by its projected increase rate.

Increase is the least strong area of HRL's present picture, with a rating of 3. The company has seen a drop in earnings per share over the past year, and sales increase has been slight. Experts anticipate a move back to small increase in both earnings and sales going forward. For a dividend investor, the main question here is whether the company can produce enough earnings increase to in time lower its high payout ratio to a more maintainable level, thus protecting the dividend's long-term prospect.

Summary

Hormel Foods Corp. offers a strong case for dividend investors who value steadiness and yield over fast increase. It demonstrates the kind of company a methodical filter can reveal: one with a notable yield and a long payment history, supported by the basic earnings and financial soundness needed to maintain that income. The high payout ratio and recent earnings difficulty are important cautions, indicating this may be a stock for investors who believe in the company's brand collection and its capacity to operate through industry tests.

For investors wanting to review other companies that meet this mix of high dividend quality, firm soundness, and acceptable earnings, the complete "Best Dividend" filter is ready to use and adjust here.

Disclaimer: This article is for information only and is not financial guidance, a suggestion, or a proposal to buy or sell any security. Investing holds risk, including the possible loss of capital. You should perform your own study and talk with a certified financial consultant before making any investment choices.