This Dividend King Has Success in the Can

While the stock market has regained some ground in recent days, the S&P 500 Index remains down 18% year-to-date. The coronavirus crisis has led to multiple states enacting shelter-in-place orders, which has the potential to result in a severe recession. Many stocks have already announced dividend cuts or suspensions, particularly in the energy, retail, and restaurant industries. Income investors now must tread carefully when picking dividend stocks. Dividend yields are elevated, due to crashing share prices, but investors need to focus on buying high-quality stocks with sustainable dividends. This is why we continue to recommend the Dividend Aristocrats, a group of 64 stocks in the S&P 500 Index that have raised their dividends for at least 25 years in a row, and the more elite Kings. One King that is particularly appealing in this time of crisis is Hormel Foods . Hormel not only has a long history of dividend growth, it has a secure dividend payout with room for continued dividend hikes each year, even if the U.S. is about to enter a severe recession. Strong Brands Lead to Stable Profits Founded in 1891 in Minnesota, Hormel has since grown into a $22 billion market cap juggernaut in the food products industry with nearly $10 billion in annual revenue. Hormel has kept with its core competency as a processor of meat products for well over a century, but has also grown into other business lines through acquisitions. The company sells its products in 80 countries, and its brands include Skippy, Spam, Jennie-O, Applegate, Justin's, and more than 30 others. When Hormel reported first-fiscal quarter financial results in February, results were better than expectations on the top line. Organic volume was up 2%, while organic revenue rose 4% during the quarter. The grocery products segment saw revenue decline by 11% to $541 million, but this was more than offset by growth across Hormel's other segments. Refrigerated foods' organic revenue increased 5.7% to $1.35 billion, while organic revenue increased 3% for the Jennie-O Turkey segment. Meanwhile, the international and other segment grew organic revenue by 5.4% to $162 million for the quarter. Hormel enjoyed broad-based growth in the most recent quarter, and the company should continue to post at least stable revenue and earnings going forward, even during the present coronavirus crisis. This is because of a simple, yet undeniable truth, that people have to eat, even in recessions. Plus, Hormel's packaged and canned product lines are likely to be purchased in even greater quantities while so many millions of people are on lockdown. Hormel's major competitive advantage is its strong brands. Over the years, the company has built a large and diversified product portfolio filled with brands that lead in their respective categories. Hormel has expanded its brand portfolio in recent years to include higher-growth lines. For example, in 2015 Hormel acquired Applegate Farms for $775 million. This was a transformative acquisition for Hormel, as it gave the company a huge presence in one of the biggest growth areas of the food industry. Applegate produces natural and organic prepared meats, such as deli meat, bacon, and hot dogs. Natural and organic foods are a major catalyst going forward. More recently, Hormel acquired a smokehouse business in Texas called Sadler's Smokehouse, for a total consideration of $270 million. Sadler's services retail and foodservice customers in the United States, and gives Hormel access to another growth segment. According to the company, Hormel has 35 products in its portfolio that are either No. 1 or No. 2 in their categories. Hormel has brands that are proven, and that leadership position is difficult for competitors to supplant. In addition, Hormel has a global network of distributors that few food companies can rival. Hormel's earnings-per-share actually grew during the Great Recession, while most of the world was in rather dire straits, a testament to the stock's defensive nature. Hormel's strong brand portfolio and steady growth has allowed it to pay consistent (and growing) dividends to shareholders for decades on end. Dependable Dividend Growth Hormel has an excellent dividend history. The company recently declared its next quarterly payout on schedule, which will be the 367th consecutive quarterly dividend paid to shareholders. It has paid quarterly dividends without interruption since it became a publicly-traded company in 1928. Hormel also has an impressive history of raising its dividend regularly. Hormel has increased its dividend for 54 consecutive years, making it a member of the Dividend Kings, that small group of 30 stocks that have raised their dividends for at least 50 years in a row. With a relatively low payout ratio of approximately 53%, in terms of the company's expected 2020 adjusted earnings-per-share, we see little risk to Hormel's dividend. The company should continue to pay its dividend throughout the coronavirus crisis, and investors should expect annual dividend increases for many years, considering the recession-resistant nature of Hormel's business model. While Hormel does not have the highest dividend yield around, in times of great economic uncertainty, investors should not be tempted by extremely high-yield dividend stocks. With so many industries virtually shutting down, many businesses are simply not operating. This has resulted in multiple dividend suspensions in recent weeks, which means income investors should be more selective when choosing dividend stocks. Hormel has a 2% dividend yield, which is not a highly impressive yield. But what it lacks in terms of current yield, the stock more than makes up for with consistency and dividend growth. Hormel's sales and profits are likely to hold up much better than many other companies in the coronavirus crisis.

This Dividend King Has Success in the Can

Hormel has the history -- and brand strength -- to show it will be successful even during a downturn.

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