This company just raised its dividend for the 58th straight year: Is it a buy?

When looking for good dividend stocks, one of the most important qualities is consistency. Investors want to know which companies boost their dividends year after year, like clockwork, without fail.

Very few have been more consistent than Hormel Foods (NYSE: HRL). The food company, which owns brands like Planter’s, Skippy, Spam, Natural Choice, and, of course, Hormel, just raised its dividend for the 58th consecutive year in November.

The company also reported less-than-stellar fourth-quarter earnings on Wednesday. Let’s take a closer look to see whether this is a stock that’s worth looking at for more than its dividend.

Dividend royalty

There are only about 15 companies in the U.S. that have longer streaks of raising their dividends than Hormel. Those that have boosted their annual payouts for at least 50 years in a row are called Dividend Kings, and Hormel is surely one of them.

On Nov. 20, Hormel raised the dividend for the first quarter of 2024 by 3% to 28.25 cents per share, up from 27.5 cents per share. The yield is a robust 3.5% with a payout ratio that’s slightly high at 63%.

Over four quarters, Hormel will pay out $1.13 per share in 2024, up from $1.10 per share in 2023. In addition to the staggering 58 straight years of dividend raises, it has paid a quarterly dividend for 382 consecutive quarters, without interruption, since it opened in 1928 — 95 years ago.

“Consistent dividend growth remains one of our top priorities,” Hormel Chairman, President and CEO Jim Snee said.

If you are a dividend investor, you’d probably be pretty happy with that income and its fairly steady long-term returns. Over the past 30 years, Hormel has generated an average annual return of 8.3%, and with the dividend reinvested, it’s 10.6% per year. That’s better than the S&P 500.

Over 20 years, the average annualized return is nearly as good, at 7.9%, and 10.3% with the dividend reinvested. That also beats the S&P 500.

However, Hormel has lagged the past 10 years, with an average annualized return of just 3%, or 5.7% with the dividend reinvested, which significantly trails the S&P 500’s return of 11.8% per year during that same stretch. Thus, it has been a good, solid investment over the years, but is it still a good buy?

Hormel stock plunged on Wednesday

Hormel posted its fiscal fourth-quarter earnings on Nov. 29, and they fell short of analysts’ expectations. The stock was down about 5% on Wednesday and was trading at just over $30 per share. It is down roughly 33% year to date.

Sales were sluggish in the quarter, down 2.6% year over year to $3.2 billion, while gross profit plunged 9% to $514 million. Overall, net earnings fell 17.8% year over year to $196 million, or 38 cents per share.

For the full fiscal year, sales were down 2.8% to $12.1 billion, while net earnings were off 11.7% to $794 million, or $1.45 per share.

“Despite challenging operating conditions to end the year, our results were in line with the low end of our revenue and adjusted net earnings per share expectations, as a strong finish from our Foodservice segment was offset by pressure in our Retail and International businesses,” Snee said.

Slow growth expected

Conditions are expected to remain challenging for Hormel in 2024, as it forecasts net sales growth of 1% to 3% and adjusted EPS in a range of $1.51 to $1.65, which would only be up slightly at the high end from $1.61 in fiscal 2023.

Further, at an investor day in October, Hormel projected 5% to 7% annual growth in operating income through 2026, which underwhelmed investors as many analysts expected higher growth rates.

However, Hormel is either first or second on most of its brands in market share, and it has tons of cash, with $1.1 billion in cash flow from operations in FY 2023. The dividend should be there for years to come.

Otherwise, it is fairly valued with a price-to-earnings ratio of about 20 and has a history of outperforming in down markets, as its products have strong brands and are staples. In bull markets, it typically lags.

For income investors or those seeking downside protection, Hormel is not a bad stock to hold, but don’t expect outsized returns. Those could be found elsewhere.