I prefer to use the term “frugal,” but in reality I’m just cheap. That’s a core aspect of my life and my investment philosophy. I just don’t like overpaying for anything. That’s why, if I could buy only three stocks as 2024 comes to a close, they’d be PepsiCo(NASDAQ: PEP), Hormel Foods(NYSE: HRL), and Hershey(NYSE: HSY). Here’s a quick look at all three of these attractive dividend stocks.
PepsiCo has increased its dividend annually for over five decades, making it a Dividend King. That’s a highly elite group of companies that you don’t join without having a very strong business. The company’s dividend yield is currently around 3.4%, which is near the highest levels seen over the past 40 years or so. In other words, it looks like a fallen angel, which means it is a good company facing temporary challenges. I’m looking closely at the stock today.
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There are a lot of things to like here. For example, PepsiCo is the No. 2 non-alcoholic beverage company in the world after Coca-Cola. It’s the No. 1 salty snack maker via its Frito-Lay brand. And it has a strong position in packaged foods with its Quaker Oats business. Its size, research and development abilities, and distribution reach make it a valued partner to retailers across the spectrum.
While the business may be facing some near-term challenges (which have slowed growth), potentially including increased government regulation in the U.S. market, it seems highly likely that PepsiCo will adapt and thrive anew in the future (just like it has in the past). There’s probably no rush to jump aboard, but if you don’t look as 2024 comes to an end, you might miss your opportunity to own this gem of a consumer staples company.
I’ve owned Hormel for a number of years, and it isn’t working out well for me right now. But I’m not selling it, and if it weren’t already a full position within my portfolio, I’d buy more of the stock. Like PepsiCo, Hormel is a Dividend King, and the dividend yield is currently near all-time highs at 3.8%. Dividend investors should find the stock very appealing as the year winds down. But a stock doesn’t find itself with a historically high yield for no reason. There are problems.
The interesting thing is that all of the problems are manageable when looked at individually. For example, Hormel has been having trouble passing on rising costs to customers. It will eventually figure this out with small price hikes over time, or it will cut costs.
Hormel has also been dealing with a slow pandemic recovery in China, where it has a sizable business. This isn’t unique to Hormel, and over time customers will likely come back. Hormel recently bought Planters right as the nut segment of the snacking niche started to slow down.
Hormel has a long history of successful innovation, which it is already putting to work with Planters and seeing success. Yes, there are problems, but Hormel should be able to deal with them. The issue that I believe Wall Street has right now is that this iconic food maker is dealing with a list of problems all at once.
I’m happy to dividend reinvest, effectively buying more of the stock every quarter, while I wait for Hormel to muddle through the headwinds it faces. Again, there’s probably no rush, but if you don’t at least start looking now, you might miss the long-term opportunity offered by Hormel’s historically high yield.
I had watched Hershey for years, hoping that someday I would have a chance to buy it at a reasonable price. That time was 2024, and there’s still an opportunity to get in if you act quickly.
Although it’s not a Dividend King, Hershey’s dividend has grown steadily over time (its annual streak is up to 15 years). That said, the dividend growth has been really impressive, with the annualized rate over the past decade at 10% (with even higher dividend growth rates over the last few years). The dividend yield right now is toward the high end of the stock’s historical yield range, at 3.2%.
I bought a starter position and then quickly built up a full position after listening to management’s comments about cocoa prices. Cocoa, a key ingredient in chocolate, has gone through the roof because of a unique set of circumstances that go way beyond general inflation trends. That’s going to be a problem for the company, but the cocoa market appears to be adjusting already.
In any case, Hershey’s growth is likely to come from salty snacks and non-chocolate confections, anyway, as it expands into new categories. If you don’t mind stepping in while others are scared — a contrarian approach to investing — Hershey seems like a solid, low-risk turnaround candidate. As with Hormel, I’m happily letting my shares dividend reinvest.
PepsiCo, Hormel, and Hershey are all well-run businesses. The proof of that is in their long histories of success and impressive dividend stats. Sure, each one is dealing with headwinds right now, but they’ve all been through tough times before and managed to survive just fine. It might take a few years, but don’t wait too long if you like reliable dividend stocks. These companies are on sale as 2024 comes to a close, but they may not be on sale forever.
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Reuben Gregg Brewer has positions in Hershey and Hormel Foods. The Motley Fool has positions in and recommends Hershey. The Motley Fool has a disclosure policy.
