Only Four Days Left To Cash In On Hormel Foods' (NYSE:HRL) Dividend
It looks like Hormel Foods Corporation (NYSE:HRL) is about to go ex-dividend in the next four days. This means that investors who purchase shares on or after the 9th of April will not receive the dividend, which will be paid on the 17th of May.
Hormel Foods's next dividend payment will be US$0.24 per share. Last year, in total, the company distributed US$0.98 to shareholders. Last year's total dividend payments show that Hormel Foods has a trailing yield of 2.1% on the current share price of $47.6. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to check whether the dividend payments are covered, and if earnings are growing.
View our latest analysis for Hormel Foods
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Hormel Foods is paying out an acceptable 57% of its profit, a common payout level among most companies. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out more than half (63%) of its free cash flow in the past year, which is within an average range for most companies.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're encouraged by the steady growth at Hormel Foods, with earnings per share up 4.8% on average over the last five years. Earnings per share growth has been slim, and the company is already paying out a majority of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Hormel Foods has lifted its dividend by approximately 17% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
The Bottom Line
Should investors buy Hormel Foods for the upcoming dividend? Earnings per share have been growing modestly and Hormel Foods paid out a bit over half of its earnings and free cash flow last year. All things considered, we are not particularly enthused about Hormel Foods from a dividend perspective.
With that being said, if dividends aren't your biggest concern with Hormel Foods, you should know about the other risks facing this business. To help with this, we've discovered 1 warning sign for Hormel Foods that you should be aware of before investing in their shares.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
This article by Simply Wall St is general in nature. 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
