We recently compiled a list of the 10 Best Beaten Down Dividend Stocks to Invest in Now. In this article, we are going to take a look at where Hormel Foods Corporation (NYSE:HRL) stands against the other beaten down dividend stocks.
Dividend stocks have faced challenges over the past year due to the rising focus on tech stocks. However, the value of income remains strong, and investors haven’t overlooked dividend equities. As a result, US companies are now more focused on dividends, offering substantial payouts to shareholders. In fact, many tech companies have begun issuing dividends this year, thanks to strong cash flow on their balance sheets. While they could reinvest in growth, sharing profits with shareholders has become an appealing strategy to attract investors.
This means that with the changing market dynamics, high-quality companies with strong balance sheets that are trading at lower multiples have become more appealing. Dividend stocks often fall into this category, as they typically have stable business models and cash flows that allow them to consistently return earnings to investors. Dan Lefkovitz, a strategist for Morningstar Indexes, also highlighted this in the firm’s latest report:
“Investing in dividend-paying stocks is a good way to participate in equities over the long term. There have been long stretches when the dividend-paying section of the market has outperformed. Eventually, they’ll come back into favor. Dividend-paying stocks have a value bias. To the extent that there’s a rotation away from technology and growth into the value side of the market and more old economy sectors, that’s going to benefit the dividend-paying portion of the market.”
Another factor influencing the market trends is the Fed’s anticipated rate cuts. Investors believe the Fed is likely to start lowering interest rates in September, marking the beginning of a new easing cycle after one of its most aggressive tightening phases. The central bank began raising rates in March 2022 in response to soaring inflation, and they’ve remained at restrictive levels since July 2023. According to popular belief, dividend investors might benefit as rates decline. Lower rates can reduce bond yields, making dividend yields more appealing by comparison. In addition, companies with higher debt, such as utility companies and REITs, often benefit from falling rates and are typically among dividend payers.
If we set aside the impact of interest rates on dividend stocks, it becomes clear that they have made a substantial contribution regardless of market conditions. According to a study by S&P Dow Jones Indices, from 1926 to July 2023, dividends accounted for 32% of the broader market’s monthly total return, with the rest coming from capital appreciation. The report also underscored the power of compounding dividends. Without dividends, an initial investment in the stock market on January 1, 1930, would have grown to $214 by July 2023. However, with dividends reinvested, that same investment would have soared to $7,219 over the same period.
While there are encouraging signs for dividend stocks, they have struggled to keep pace with the broader market this year. The Dividend Aristocrats Index, which tracks the performance of companies with at least 25 consecutive years of dividend growth, has gained nearly 9% in 2024, compared with over 16.5% return of the broader market. With this, we will take a look at some of the best beaten down dividend stocks to invest in.
Our Methodology:
To compile this list, we began by examining stocks that have experienced a decline from their peak prices within the past three years. From this pool, we selected 10 dividend-paying stocks that have witnessed a drop of 25% or greater in their share prices over these three years. The rankings within the list are based on the extent of the decrease in share prices from their three-year highs to their current levels, with the list arranged in ascending order of these declines as of August 30, 2024.
We also measured hedge fund sentiment around each stock according to Insider Monkey’s database of 912 funds as of Q2 2024. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A close-up of a hand cutting fresh turkeys, revealing the perishable products of the company.
Hormel Foods Corporation (NYSE:HRL)
3-year high-to-low share price decrease as of August 30: 39.5%
Hormel Foods Corporation (NYSE:HRL) is one of the best dividend stocks that is currently facing business headwinds. The American food processing company specializes in marketing and production of a wide range of consumer-branded food and meat products. In the past 12 months, the stock has fallen by nearly 18%.
Hormel Foods Corporation (NYSE:HRL) is struggling to pass on rising costs to its customers, a challenge that its competitors don’t seem to face. In addition, its turkey operations have been severely impacted by avian flu outbreaks. The company reported declines on many fronts in the first quarter of 2024. Its revenue fell by 3% on a YoY basis at $2.9 billion and its operating income also dropped to $252 million, from $296 million in the same period last year. However, the company’s volumes provided some relief for investors, with its food service volumes notably rising by 2.9% compared to the same period last year.
When we look at the performance of Hormel Foods Corporation (NYSE:HRL) for the first half of the year, it doesn’t look too bad, especially when taking its cash flows into account. This period for the company was strong, with consecutive quarters of earnings surpassing expectations and a significant boost in operating cash flows. The company also made strides in its strategic initiatives and is on course to achieve its goals of enhancing business performance and driving long-term growth and returns for shareholders. So far this year, it has generated over $640 million in operating cash flow, representing a 55% increase from the same period last year.
The strong cash flows have enabled Hormel Foods Corporation (NYSE:HRL) to increase its dividends for 50 consecutive years, a significant achievement that’s not easy to accomplish. The company’s quarterly dividend comes in at $0.2825 per share and has a dividend yield of 3.47%, as of August 30.
Of the 912 hedge funds tracked by Insider Monkey at the end of Q2 2024, 31 funds held investments in Hormel Foods Corporation (NYSE:HRL), growing from 27 in the preceding quarter. These stakes have a consolidated value of nearly $714 million. Among these hedge funds, Citadel Investment Group was the company’s leading stakeholder in Q2.
Overall HRL ranks 8th on our list of the best beaten down dividend stocks to invest in now. While we acknowledge the potential for HRL as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than HRL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.