Hormel Foods’ Capital Allocation Plans Are Impressive



Dividend yield

Hormel Foods’ (HRL) current dividend yield is 1.9% based on the closing price of $39.66 as of September 19. In comparison, Tyson Foods’ (TSN) current dividend yield stands at 1.9%, while that of Sanderson Farms (SAFM) is 1.3%. Campbell Soup’s (CPB) current yield is 3.5%, and that of Conagra’s (CAG) is 2.3% based on its September 19 closing price. Dividend yield implies the cash flow received by the investor for each dollar invested in the company’s stock.

Hormel Foods has been increasing dividends for the last 52 years, which makes it a dividend aristocrat. A dividend aristocrat is a company that has increased its dividend payout consistently for 25 years or more.

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For fiscal 2018, the company raised dividends by 10% to $0.1875. The company hiked dividends by 17.2%, 16%, and 25% for fiscal 2017, 2016, and 2015, respectively. For the three quarters of fiscal 2018, Hormel Foods has paid dividends worth $288.5 million. Some other dividend aristocrats in the packaged food manufacturers listed on the S&P 500 include McCormick (MKC), PepsiCo (PEP), and Coco-Cola (KO).

Share buybacks

Hormel Foods remains committed to share buybacks and dividends. Share repurchases improve the earnings per share by lowering the average share count. However, in the third quarter, the company has refrained from buying back any shares. For the three quarters of fiscal 2018, the company has repurchased shares worth $44.7 million.

Capex plans

For fiscal 2018, the company’s capital expenditure stands at $400 million. The company continues to enhance the manufacturing capacity of the value-added business and is also setting up new production facilities. The capital expenditure stood at $244 million for the first nine months of fiscal 2018.


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