Tyson Foods: An Undervalued Stock With A Reliable And Safe Dividend

 

·         Tyson Food is trying to capture the plant-based meat industry.

·         Dividend payout ratios are currently quite low which indicates that there is great room for dividend increases.

·         Our conservative DCF Model yields $92 stock value.

 

SeekingValue Research

via Seeking Alpha - Apr. 01, 2021

 

Tyson Foods, Inc. (TSN) proposes a 2.36% dividend yield with a huge dividend growth opportunity in the future. The company is trying to seize the plant-based meat industry in the USA and in Europe. The stock is currently quite undervalued and can bring double-digit returns in mid-term horizons.

 

The current inflationary environment is quite beneficial for food industry stocks. The tendency is that food prices go up while rising inflation causes market volatility, which urges investors to increase their positions in defensive industries.

 

The company operates in 4 segments: Beef, Pork, Chicken, and Prepared Foods. According to the USDA, in the USA, domestic protein production will be flat in 2021 compared to 2020 levels. USDA also reported that in 2020, the industry grew only 2% compared to 2019 (due to increased prices). It is quite obvious that the industry in the USA is rather mature and we can expect slow or 0% growth in the long run. There is also a big pressure from competitors and from substitute products. However, due to its large market share (20%), Tyson Foods was able to create a loyal consumer base, which serves as a reliable economic moat for the company.

 

Nevertheless, substitute products that are currently in the market pose a huge threat to the industry and a great opportunity for the company. People used to change their habits quite fast. According to Health Focus Data, 60% of US consumers are intended to decrease meat-based product consumption. It is estimated that in 2014 only 1% of US consumers were vegans, while in 2019 the number stood at 6%. To catch the trend, Tyson Foods started to diversify its business towards plant-based food production...

 

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