This Consumer Staple Has a 6% Yield And Paid A Consecutive Dividend Since 1989
"Down 28% In The Past Year, This Low P/E Stock May Be Attractive"
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Current Price: $21.25
Dividend/Yield: $0.29/5.55%
Inflation has not been kind to many businesses, especially those heavily reliant on consumer spending and discretionary grocery purchases.
Due to ongoing geopolitical tensions and growing economic uncertainty, inflation concerns have resurfaced once again after April’s hotter-than-expected CPI report showed inflation rising to 3.8%.
As a result, consumers continue shifting toward value-oriented alternatives, benefiting retailers like Costco (COST) and Walmart (WMT) while pressuring branded food companies such as Hormel Foods (HRL).
That ongoing pressure is one of the biggest reasons Hormel continues struggling to regain momentum despite signs of stabilization beginning to emerge.
However, at a forward P/E of just 13.72x alongside a dividend yield nearing 6%, the risk/reward profile is becoming increasingly attractive for patient, long-term income investors willing to tolerate continued volatility.
In this article, I discuss Hormel’s latest earnings, expectations for their upcoming Q2 report, and why I continue to maintain a Hold rating despite the depressed valuation and elevated yield.
Portfolio Transition Showing Some Progress 📊
Although Hormel continues facing macro headwinds, there were some encouraging developments throughout 2025.
All three operating segments managed positive growth:
Segment Performance
Retail: +1%
Foodservice: +5%
International: +1%
Foodservice remains the strongest-performing business currently, benefiting from resilient demand and pricing actions.
For the year:
Organic sales growth totaled 2%
Revenue increased to $12.1 billion
EPS declined from $1.47 to $1.37
Unfortunately, profitability remains the core issue.
Margin Pressure Continues
Cash from operations declined from $1.3B to $845M
Operating income fell from $1.1B to $719M
Adjusted operating margin compressed from 9.6% to 8.4%
Persistent inflation and elevated input costs continue weighing heavily on profitability despite revenue stabilization.
Q1 Earnings: Stabilization Emerging 🤔
During Q1 earnings in February, Hormel delivered:
Q1 Highlights
2% organic sales growth
Fifth consecutive quarter of positive organic growth
EPS of $0.34
Strong Foodservice and International performance
Management credited much of the stabilization to their growing focus on protein-oriented products as consumer trends continue shifting toward high-protein diets and healthier food choices.
Segment Breakdown
Retail:
Sales declined 2%
Continued weakness from exiting non-core snack nut business
Foodservice:
Sales grew 7%
International:
Sales grew 8%
The Retail segment remains the primary concern moving forward, particularly as inflation pressures consumers toward lower-cost alternatives and private-label products.
Management’s Long-Term Strategy ♟
Hormel continues repositioning the portfolio toward:
Protein-powered brands
Higher-margin products
Operational optimization
Divestiture of lower-growth assets
One of the biggest strategic changes is the divestiture of the turkey business, which management expects will reduce annual revenue by roughly $50 million but have minimal earnings impact.
Long-term, management expects:
2%–3% annual sales growth
5%–7% operating income growth
While those growth rates are not overly exciting, they do suggest Hormel may finally be entering a more stable operating environment after several difficult years.
Dividend & Balance Sheet Remain Bright Spots 💵
Despite operational challenges, Hormel’s dividend remains relatively safe and well-covered.
Dividend Highlights
Payout ratio: 57%
Dividend Aristocrat status maintained
Yield approaching 6%
Cash generation also remains adequate:
Cash from operations: $349M
Capital expenditures: $69M
Dividends paid: $160M
The balance sheet remains healthy as well.
Balance Sheet Snapshot
Long-term debt: $2.85B
Cash & equivalents: $868M
Minimal near-term debt maturities
Management continues prioritizing investment-grade credit quality, giving Hormel flexibility to continue restructuring operations while supporting dividend growth.
Don’t Expect Much From Q2
Hormel reports Q2 earnings on May 28th, and personally, I do not expect major improvement.
Management already guided for:
Modest top-line growth
Mostly flat profitability
Current analyst expectations call for:
Slight EPS improvement
Revenue decline to roughly $2.96B
My Expectations
EPS: $0.34–$0.37
Revenue: $3.0B–$3.06B
The two biggest things investors should monitor:
Margins
Retail segment stabilization
If inflation remains elevated, margins could continue compressing, which would likely pressure shares further.
Valuation Looks Attractive 📉
Using guidance midpoint EPS of $1.47, Hormel trades at a forward P/E of just 13.72x.
That remains well below its:
5-year average multiple of 21.62x
Even compared to peers like:
Kraft Heinz (KHC)
The Campbell’s Company (CPB)
Hormel still offers a respectable combination of:
Defensive characteristics
Dividend reliability
Long-term brand strength
However, valuation alone is not enough to drive upside if margins continue deteriorating.
Why I’m Still Holding, Not Buying ⚠️
While the valuation and dividend are becoming increasingly attractive, I still believe near-term risks outweigh rewards.
Reasons For Caution
Inflation remains elevated
Consumer spending trends remain weak
Retail segment stabilization is still uncertain
Margins continue facing pressure
Management growth expectations remain modest
Near-term, I expect shares to remain mostly range-bound until:
Inflation moderates
Margins improve sequentially
Retail performance stabilizes
If margin recovery becomes more evident, I could eventually see shares moving toward the $22–$25 range over time.
But for now, patience is likely required.
Bottom Line ✅
From an income and valuation perspective, Hormel Foods is beginning to look increasingly attractive for long-term investors with higher risk tolerance.
The nearly 6% dividend yield, Dividend Aristocrat status, and depressed valuation all provide meaningful long-term upside potential if management successfully stabilizes margins and executes its portfolio transition.
However, inflationary pressures and changing consumer behavior will likely continue limiting profitability and growth over the near-to-medium term.
Is Hormel worth the 6% dividend? Let me know in the comments.
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Not financial advice. For educational purposes only. I am not a licensed professional. Do your own due diligence.
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