Hormel Foods Corp. Dividend Stock Analysis

about: HRL

 

Seeking Alpha

January 31, 2013

 

Linked here is a detailed quantitative analysis of Hormel Foods Corp. (HRL). Below are some highlights from the above linked analysis:

 

Company Description: Hormel Foods Corp. is a multinational manufacturer and marketer of consumer-branded food and meat products.

 

Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description:

 

1. Avg. High Yield Price

2. 20-Year DCF Price

3. Avg. P/E Price

4. Graham Number

 

HRL is trading at a premium to all four valuations above. The stock is trading at a slight premium to its calculated fair value of $34.19. HRL did not earn any Stars in this section.

 

Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:

 

1. Free Cash Flow Payout

2. Debt To Total Capital

3. Key Metrics

4. Dividend Growth Rate

5. Years of Div. Growth

6. Rolling 4-yr Div. > 15%

 

HRL earned three Stars in this section for 1.), 2.) and 3.) above. A Star was earned since the Free Cash Flow payout ratio was less than 60% and there were no negative Free Cash Flows over the last 10 years. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45%. HRL earned a Star for having an acceptable score in at least two of the four Key Metrics measured. The company has paid a cash dividend to shareholders every year since 1928 and has increased its dividend payments for 47 consecutive years.

 

Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA) or Treasury bond? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:

 

1. NPV MMA Diff.

2. Years to > MMA

 

HRL earned a Star in this section for its NPV MMA Diff. of the $1,532. This amount is in excess of the $500 target I look for in a stock that has increased dividends as long as HRL has. If HRL grows its dividend at 12.4% per year, it will take 3 years to equal a MMA yielding an estimated 20-year average rate of 2.54%. HRL earned a check for the Key Metric 'Years to >MMA' since its 3 years is less than the 5 year target.

 

Memberships and Peers: HRL is a member of the S&P 500, a Dividend Aristocrat and a member of the Broad Dividend Achievers™ Index and a Dividend Champion. The company's peer group includes: Cal-Maine Foods, Inc. (CALM) with a 1.9% yield, Mondelez International, Inc. (MDLZ) with a 1.9% yield and ConAgra Foods, Inc. (CAG) with a 3.1% yield.

 

Conclusion:

 

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