Why Hormel Foods (HRL) Is A Top Dividend Stock For Your Portfolio

All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. However, when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.

Cash flow can come from bond interest, interest from other types of investments, and of course, dividends. A dividend is that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the dividend as a percent of the current stock price. Many academic studies show that dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

Hormel Foods in Focus

Based in Austin, Hormel Foods (HRL) is in the Consumer Staples sector, and so far this year, shares have seen a price change of -4.26%. The maker of Spam canned ham, Dinty Moore stew and other foods is currently shelling out a dividend of $0.23 per share, with a dividend yield of 2.15%. This compares to the Food - Meat Products industry's yield of 0.01% and the S&P 500's yield of 1.98%.

In terms of dividend growth, the company's current annualized dividend of $0.93 is up 10.7% from last year. Hormel Foods has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 13.27%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Hormel's current payout ratio is 53%, meaning it paid out 53% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for HRL for this fiscal year. The Zacks Consensus Estimate for 2020 is $1.76 per share, representing a year-over-year earnings growth rate of 1.15%.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. But, not every company offers a quarterly payout.

Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, HRL is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).