Last update on 2024-06-27

Hershey (HSY) - Dividend Analysis (Final Score: 8/8)

Comprehensive dividend analysis of Hershey (HSY) with perfect score. Discover Hershey's consistent dividend performance and investor appeal.

Short Analysis - Dividend Score: 8

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

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?

Dividends can play a significant role in an investor's total return. The dividend yield indicates how much a company pays out in dividends relative to its stock price. Yield higher than industry average can attract income-focused investors.

With Hershey's current dividend yield at 2.39%, which exceeds the industry average of 2.05%, it becomes an appealing option for dividend-seeking investors. By examining the trend over the past 20 years, it's evident that Hershey generally maintains a competitive and often superior dividend yield compared to its industry peers. For example, during the 2008 financial crisis, Hershey's dividend yield spiked to 3.4312%, significantly outpacing the industry. Despite some volatility, Hershey's yield has remained robust and consistently attractive. The recent surge to 2.39% further accentuates the stock's appeal as an income generator. Given the historical context and higher-than-average yield, Hershey demonstrates considerable commitment to rewarding its shareholders.

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

The dividend growth rate indicates how much a company's dividend payments have increased over a specific period. A growth rate higher than 5% suggests strong and consistent dividend performance, which is appealing to income-focused investors.

For Hershey (HSY), the provided historical dividend per share ratio values reflect a fluctuating trend over the years. While some years showed significant growth (e.g., 2022 with a dividend ratio of 13.607 compared to 8.1167 in 2021), other years saw declines (e.g., 2005 to 2006, and the notably low ratios in various years like 2008, 2009, and 2016). The calculated average dividend ratio over the 20 years is approximately 9.83. This indicates that while there has been growth in dividends over time, the rate has been inconsistent. The criterion of a dividend growth rate higher than 5% suggests room for caution, considering the mix of high and low growth periods. This variance hints at potential business cycle effects or specific corporate actions impacting dividend decisions. However, overall, the average growth rate exceeding 5% can be seen as positive despite the fluctuations.

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

Criterion 1.2: Average Payout Ratio lower than 65% in the last 20 years?

Hershey's (HSY) average payout ratio over the last 20 years stands at 59.31%. The company met the criterion, with payouts consistently below the 65% benchmark, contributing to a positive outlook on sustainability.

Dividends Well Covered by Earnings?

Dividends are well covered by the earnings.

The provided data shows the Earnings per Share (EPS) and Dividends per Share (DPS) for Hershey from 2003 to 2023, as well as the ratio of dividends covered by earnings. The ratios fluctuate over the years, with a concerning spike in 2007 (1.221) indicating that dividends exceeded earnings. However, most values are below 1, showing that earnings comfortably covered dividends. Recent years maintain a ratio around 0.48-0.54. Lower ratios indicate that more earnings are retained for growth or other uses, which is generally a positive trend for sustainability. Hershey's consistent capability to cover dividends from earnings reflects sound financial health, but 2007 stands out as an anomaly.

Dividends Well Covered by Cash Flow?

The dividend coverage ratio examines how well a company's free cash flow can cover its dividend payouts. This criterion is essential because it reflects the safety, sustainability, and potential growth of the dividend.

Analyzing Hershey's (HSY) ratio of free cash flow to dividend payouts from 2003 to 2023 provides insights into the firm's dividend sustainability. Ideally, coverage ratios above 1.0 are favorable since they signify that the company generates enough free cash flow to cover its dividend obligations without tapping into other financing sources. During this period, Hershey's lowest coverage ratio was 0.278 in 2009, indicating some risk, while the highest was 1.303 in 2011, suggesting ample coverage. Post-2014, the coverage ratios hover around the 0.4 to 0.5 range, which is typically below the 1.0 threshold, implying limited margin for error. Although a ratio under 1.0 doesn’t necessarily signal immediate danger, it does suggest that the dividends are not fully supported by free cash flow, potentially raising concerns about long-term sustainability if adverse conditions arise. Therefore, this trend could be seen as moderately concerning, warranting closer examination.

Stable Dividends Since the Company Began Paying Dividends?

Stability in dividend payments, where the dividend per share did not drop by more than 20% over the past two decades, is of utmost importance for income-seeking investors.

In the case of Hershey (HSY), the dividend per share data for the past 20 years shows a steadily increasing trend, rising from $0.723 per share in 2003 to $4.456 per share in 2023. There has not been a year-on-year drop of more than 20% in the dividend per share throughout this period. This indicates a very stable and progressively increasing dividend payout, which is very attractive to income-seeking investors. Consistent and increasing dividend payments reflect positively on the company’s financial health and its commitment to returning value to shareholders. This trend is beneficial for investors who rely on dividends as a source of income, indicating that Hershey remains a reliable option for steady dividend income.

Dividends Paid for Over 25 Years?

Determining whether a company has paid dividends for over 25 years is important because it reflects the company's stability, financial health, and commitment to returning value to shareholders over the long term.

Hershey has consistently paid dividends from 1998 to 2023, covering a span of 26 years. Over these years, the dividend per share has seen a substantial increase from $0.46 in 1998 to $4.456 in 2023. This trend demonstrates a strong commitment to rewarding shareholders, indicative of robust financial health and stability. It is a positive sign as it assures investors of Hershey's ability to generate steady cash flows and sustain dividend payouts over the long term.

Reliable Stock Repurchases Over the Past 20 Years?

Explain the criterion for Hershey (HSY) and why it is important to consider.

The number of shares outstanding for Hershey has generally been decreasing over the past 20 years, from 264,499,422 shares in 2003 to 204,738,000 shares in 2023. This represents a reduction in share count of approximately 1.2645% per annum on average. The most reliable repurchasing years were noted across various periods: 2004, 2005, 2006, 2007, 2008, 2011, 2012, 2013, 2014, 2015, 2016, 2017, 2018, 2019, 2020, 2021, 2022, and 2023. This reduction in share count, driven by consistent repurchasing activities, generally leads to a higher earnings per share (EPS) and contributes to higher stock prices. This trend is good as it indicates a consistent return of value to shareholders through buybacks.