Last update on 2024-06-27

Hormel Foods (HRL) - Dividend Analysis (Final Score: 7/8)

In-depth analysis of Hormel Foods (HRL) dividend policies, evaluating their performance and stability through an 8-criteria scoring system. Final score: 7/8.

Short Analysis - Dividend Score: 7

We're running Hormel Foods (HRL) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

The dividend analysis of Hormel Foods (HRL) used an 8-criteria scoring system to evaluate the performance and stability of its dividend policy. Hormel Foods scored 7 out of 8, indicating strong overall performance. The company's dividend yield of 3.4257% is significantly higher than the industry average of 1.77%, showing a strong income-generating capability. Over the past 20 years, Hormel's dividends per share increased from $0.105 to $1.1, demonstrating a solid commitment to returning value to shareholders. Despite some volatility, Hormel's average annual dividend growth rate was 13.5235%, higher than the recommended 5%. The company's average payout ratio remained at 40.33%, below the ideal 65%, though it spiked to 75.74% in 2023. Dividend coverage by free cash flow was below 1 for most years but showed improvement in recent periods. Hormel Foods has paid stable dividends for over 25 years and maintained a reliable stock repurchase program, albeit with some inconsistencies. Overall, Hormel Foods has demonstrated a solid dividend policy with areas for further improvement, particularly in cash flow coverage.

Insights for Value Investors Seeking Stable Income

Based on this analysis, Hormel Foods (HRL) appears to be a strong candidate for dividend-seeking investors. The company's higher-than-average dividend yield and consistent payment history make it an attractive option for stable income. However, investors should remain cautious about the fluctuations in dividend growth and dividend coverage by free cash flow. If you're looking for a reliable dividend-paying stock with potential for income growth, Hormel Foods is worth considering, but keep an eye on its cash flow trends for future stability.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Dividend yield measures the income earned from an investment relative to its price. A higher yield can signify better income relative to investment and can attract income-focused investors.

Hormel Foods' dividend yield of 3.4257% stands significantly higher than the industry average of 1.77%. Over the past 20 years, there has been a noticeable uptrend in Hormel's dividend yield, peaking at 3.4257% in 2023 from 1.6273% in 2003. The company's consistent increase in dividends per share, from $0.105 in 2003 to $1.1 in 2023, demonstrates its commitment to returning shareholder value. While the industry has generally seen a decrease in dividend yields over time—peaking in 2007 at 12.91% and falling to 1.77% in 2023—Hormel's yield has strengthened, suggesting a resilient and perhaps more robust income-generating capability than its peers. This is particularly attractive given the slowdown in the stock price appreciation in recent years, from a high of $48.81 in 2021, declining to $32.11 in 2023. Therefore, Hormel Foods demonstrates a good trend in dividend yield, providing assurance and attractiveness to dividend-seeking investors.

Average annual Growth Rate higher than 5% in the last 20 years?

The dividend growth rate indicates how much the dividend payout by a company has increased over time. A higher than 5% growth rate signifies healthy and consistent earnings.

The given data for Hormel Foods (HRL) shows a mixed trend in the dividend growth rate over the last 20 years. While there are years with exceptional growth such as 2008 (23.3333%) and 2015 (25%), there are also years with negative growth, like 2017 (-21.8391%) and 2019 (-10.5907%). The average dividend growth rate over the period is 13.5235%, which is indeed higher than 5%. This trend indicates a generally positive outlook for dividend payments by Hormel, reinforcing the notion of reliable earnings. However, the negative growth years underline potential volatility. Despite this, an average growth rate of over 13% is commendable and suggests financial robustness in most years.

Average annual Payout Ratio lower than 65% in the last 20 years?

Average Payout Ratio lower than 65% in the last 20 years and why it is important to consider

The average payout ratio of Hormel Foods (HRL) over the last 20 years stands at 40.33%. This is comfortably below the 65% threshold. A lower payout ratio indicates that a company retains more of its earnings, which can be re-invested in growth opportunities, reducing reliance on external financing. Hormel Foods has consistently maintained a payout ratio lower than 65% for the majority of this period, except in 2023, where it spiked to 75.74%. While the spike in 2023 is notable and may require further investigation, the trend overall is positive, suggesting that the company has a stable dividend policy backed by solid earnings.

Dividends Well Covered by Earnings?

Explanation of the criterion that dividends are well covered by the earnings. Why it is essential to evaluate this aspect?

Dividend coverage ratio is a useful metric for assessing if a company offers sustainable dividends. A ratio below 1 signifies that the dividends paid exceed earnings, risking potential financial instability. Conversely, a ratio above 1 reflects a healthy relationship between earnings and dividends, indicating that the company can preserve its payouts even amid challenging economic times.

Dividends Well Covered by Cash Flow?

Dividends Well Covered by Cash Flow. This criterion assesses whether the company generates enough free cash flow to cover its dividend payments. A ratio below 1 implies that dividends might be at risk, while a ratio above 1 suggests that the dividends are well covered by the company's cash flows.

Reviewing the provided dataset from 2003 to 2023, we observe that Hormel Foods (HRL) had a mixed performance when it comes to covering dividends by free cash flow. The ratio has primarily been below 1, signifying potential risks for dividend sustainability in these periods. Specifically, the values from 2003, 2009, and recent years like 2022 and 2023 exhibit figures around 0.7-0.76, indicating a solid improvement but still below the ideal mark of 1. Interestingly though, 2023 shows the highest coverage at approximately 0.76. This upward trend is positively promising for investors who place emphasis on dividend safety. In conclusion, while there have been concerning periods, the recent uptrend suggests better cash flow management and potential for dividends to be secure if this trend continues.

Stable Dividends Since the Company Began Paying Dividends?

Stability in dividends over a long period indicates the reliability of a company in providing consistent returns to shareholders.

The dividend per share for Hormel Foods (HRL) has shown a consistent upward trend over the past 20 years, with no drops exceeding 20%. This indicates stable and predictable dividend payments, making Hormel Foods a reliable choice for income-seeking investors.

Dividends Paid for Over 25 Years?

Dividends Paid for Over 25 Years

The dataset indicates that Hormel Foods has a record of continuously paying dividends for over 25 years, from 1998 to 2023. The dividend per share has increased significantly over this period, from 0.08 in 1998 to 1.1 in 2023. This reflects a compound annual growth rate (CAGR) which signals strong financial health and commitment to returning value to shareholders. This trend is excellent as it demonstrates stability, reliability, and increasing profitability, making HRL an attractive stock for dividend-focused investors.

Reliable Stock Repurchases Over the Past 20 Years?

A reliable stock repurchase program indicates a company's confidence in its own value and helps to return capital to shareholders, often leading to an appreciation in the share price.

An analysis of the share numbers from 2003 to 2023 shows fluctuations. The repurchase years are identified as 2005, 2006, 2008, 2009, 2010, 2012, 2014, 2017, and 2019. However, there are inconsistencies, and not every year shows a decrease in shares. The average repurchase value over the last 20 years is -0.109 indicating a decrease in shares. But with shares in some years actually increasing, Hormel Foods' repurchase program shows some reliability but lacks consistent execution, which could be seen as a mixed signal regarding the company's buyback strategy.