The consumer staples industry has historically been one of the best performing sectors of the stock market.

A large reason for this is the performance of these stocks during recessions. Consumer staples companies produce necessity products, and sales remain relatively constant during economic downturns.

One great example of a consumer staples stock with a robust dividend history and strong total return prospects is Hormel Foods (HRL). Hormel is well known for its household brands like Jennie-O Turkey and SPAM.

Hormel is a dividend darling, with 51 years of consecutive dividend increases. This qualifies the company to be a member of the Dividend Kings, a group of stocks with 50+ years of consecutive dividend increases – twice the requirement to be a Dividend Aristocrat.

Hormel ranked as a top 10 stock according to The 8 Rules of Dividend Investing in the most recent Sure Dividend Newsletter. This article will discuss the investment prospects of Hormel Foods in detail.

Business Overview

Hormel’s earliest predecessor was established in 1891 by George Hormel, who founded Geo. A. Hormel & Co. in Austin, Minnesota. The business’ early growth was driven by robust consumer demand for Hormel’s packaged pork products.

After less than 20 years in business, Hormel was already planning international expansion.

Today, Hormel is a behemoth in the packaged foods industry. The company generated $9.5 billion of 2016 sales and has a market capitalization of ~$18 billion.

HRL We Are Hormel Foods

Source: Hormel Foods 2017 CAGE Presentation, slide 4

Hormel is currently divided into 5 operating segments:

  • Refrigerated Foods (49% of 2016 sales)
  • Jennie-O Turkey Store (18% of 2016 sales)
  • Grocery Products (18% of 2016 sales)
  • Specialty Foods (10% of 2016 sales)
  • International & Other (5% of 2016 sales)
  • A snapshot of each of Hormel’s operating segments can be seen below.

    HRL Business Overview

    Source: Hormel Foods 2017 CAGE Presentation, slide 4

    Hormel has an impressive history of delivering total returns to its shareholders.

    The company has grown its earnings-per-share in 28 out of the past 31 years, which is a record matched by only 4 companies in the S&P 500. Johnson & Johnson (JNJ) (the textbook example of a high quality business) is one of them.

    HRL We Have Grown Earnings 28 Out of 31 Years

    Source: Hormel Foods 2017 CAGE Presentation, slide 11

    Hormel has a rather unique corporate structure. The company’s founder (George Hormel) and his son (Jay Hormel, who eventually led the company) created the Hormel Foundation to ensure that their business would give back to the communities it serves for decades to come.

    The Hormel Foundation currently owns ~48.5% of Hormel Foods Corporation and donated over $34 million to projects in the Austin, Minnesota area in 2016. Many of the directors of Hormel Foods Corporation are also directors of the Hormel Foundation, which helps align the interests of Hormel with those of its largest shareholder.

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