High Dividend Stocks To Serve With Turkey

| November 25, 2015

Last year at Thanksgiving, one of my best friends came over and insisted on making the stuffing for our turkey.

He told me it was his grandmother’s recipe.  Nothing written down, all in his head.

I didn’t think there was much culinary knowledge locked away in my friend’s otherwise remarkable brain.

My suspicions were confirmed when he started crunching up handfuls of Saltines to use as the foundation for the stuffing.

Oh well.

It could have been worse.  We had our turkey.  It’s not as if we were stuck eating SPAM®, the signature product of Hormel Foods $HRL.

But you could be feasting on a Hormel product this Thanksgiving and not even know it.

For instance, Hormel owns Jennie O Turkeys.

Surprised?

Well, it’s no surprise that when it comes to paying a dividend, Hormel Foods is Cordon Bleu.

It’s been serving up dividend growth for 48 years.

And while we probably won’t put Hormel on a list of high dividend stocks, the fact that the dividend keeps growing gives it special status.

Meet The Dividend With Plenty Of Room To Grow

With a low dividend payout ratio, just 38.3%, there’s plenty of money for Hormel to plow into dividend growth.

When you check out the dividend payout ratio essentials, you’ll see how strong a number this is.

Is it strong enough to justify the Hormel stock’s high price tag?   The P/E Ratio (Price Earnings Ratio) is way up there at 27, about double the market.

And the actual yield is low, just 1.47%.

So we’re in the familiar position of looking at a dividend stock that comes with pluses and minuses.

Is Hormel one of the best dividend stocks to buy?  One of the best dividend stocks for a rainy day?

If you’re hung up on high yield, no.  But if you’re happy to sit back and let the yield grow over time, yes.

Is Hormel a good deal?  Well, with that high P/E ratio, it’s not exactly cheap.  But let’s face it, you always pay for quality.

2015 has been a solid year for Hormel.  In fact, the stock has been on a roll for quite awhile…

Hormel $HRL Dividend Stocks Chart

What We Can Learn From Dividend Stocks Like Hormel

The first lesson is not to make fun of SPAM®.   Dividend investors who have held Hormel for years are laughing all the way to the bank.

The next lesson is not to gorge on yield.  Small yields turn into big ones when there’s consistent growth year after year.

The dividend Hormel pays is modest.  It’s actually fairly low if all you measure is today’s yield.  It’s the growth that makes this a tasty dividend stock.  Look back over the past five years and you’ll see Hormel has increased the dividend by an average of 18% a year.

18% is strong.  Right now, the average dividend growth for the stocks on the S&P 500 is 10.4%.

Don’t bank on double-digit dividend growth year after year.  When you size up dividend growth for the overall market, you’ll discover that it ebbs and flows.

A few years ago, there wasn’t any dividend growth.  Nada.  2009 was actually a negative year, when overall dividends went down by 21%.

So when you run into a dividend stock like Hormel, where the dividend has been growing for 48 years, you’ve got to hand it to the guys in Austin, MN.

Big Returns From A Small City

There are 24,000 people in Austin, MN.  And as you might imagine, Hormel is the largest employer.

Just like the small city where it’s based, Hormel is quiet, cautious, and careful.  But it’s not asleep at the wheel.

The company has made some intriguing acquisitions.  Earlier this year, it bought Applegate Farms.  Adding the Applegate® brand, known for organic food products, is a smart move.  Hormel is paying attention to a consumer market that’s shifting toward more organic foods.

One other interesting thing about Hormel… the largest shareholder isn’t one of the big mutual funds like Fidelity or Vanguard.

Vanguard is the second largest shareholder, but number one is The Hormel Foundation.  It owns 128 million shares, more than 10 times what Vanguard owns.

What does this mean for dividend investors?

Hard to say with 100% assurance, but when a large block of stock is held by a foundation, there’s a good chance the trustees are content to sit back and let it grow.

This can take speculative pressure off the stock, and give you some insulation from the inevitable ups and downs.

Cooking Up Dividends Low And Slow

Turn down the heat on yield.  Take a closer look at stocks that pay “small” dividends.  That’s how you turn up gems like Hormel.

You’ll find some of the best dividend stocks to buy on the lineup of the S&P 500 Dividend Aristocrats.

In fact, 16 of these outstanding stocks pay a yield of less than 2%.

Dividend stocks like Walgreen’s $WBA, McGraw Hill $MHFI, and Sherwin-Williams $SHW.

Look beyond the low yield.  Take a look at the dividend growth and the dividend payout ratio.  That’s how you’ll find terrific opportunities.

A plump and moist Jennie O Turkey packed with your favorite stuffing… it doesn’t get much better.

And it doesn’t get much better for dividend investors than a stock like Hormel.

Cordially,

Paul Duke
Dividend Stocks Research

Note:  Paul Duke writes and edits DividendStocksResearch.com.  Sign up for our free dividend reports and dividend newsletter at http://www.dividendstocksresearch.com/free-sign-up.  We’ll show you how to create regular income by investing in dividend stocks, easily, step-by-step.

 

Tags: , , , , ,

Category: Dividend Stocks

About the Author ()

Comments are closed.