Yahoo Finance Hormel Foods (NYSE:HRL) Is Due To Pay A Dividend Of $0.2825
Hormel Foods Corporation (NYSE:HRL) has announced that it will pay a dividend of $0.2825 per share on the 15th of August. This means the annual payment is 3.7% of the current stock price, which is above the average for the industry.
Check out our latest analysis for Hormel Foods
Hormel Foods' Earnings Easily Cover The Distributions
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Hormel Foods' dividend made up quite a large proportion of earnings but only 63% of free cash flows. This leaves plenty of cash for reinvestment into the business.
Over the next year, EPS is forecast to expand by 42.7%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 62% which brings it into quite a comfortable range.
Hormel Foods Has A Solid Track Record
The company has an extended history of paying stable dividends. The dividend has gone from an annual total of $0.34 in 2014 to the most recent total annual payment of $1.13. This implies that the company grew its distributions at a yearly rate of about 13% over that duration. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.
Dividend Growth Is Doubtful
The company's investors will be pleased to have been receiving dividend income for some time. However, initial appearances might be deceiving. In the last five years, Hormel Foods' earnings per share has shrunk at approximately 5.6% per annum. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this can turn into a longer term trend.
In Summary
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Hormel Foods' payments, as there could be some issues with sustaining them into the future. The company has been bring in plenty of cash to cover the dividend, but we don't necessarily think that makes it a great dividend stock. We would be a touch cautious of relying on this stock primarily for the dividend income.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Without at least some growth in earnings per share over time, the dividend will eventually come under pressure either from competition or inflation. Businesses can change though, and we think it would make sense to see what analysts are forecasting for the company. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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