Hershey (HSY): Dividend Stock Review

PUBLISHED Dec 2, 2022, 10:10:19 PM        SHARE

img
imgDividend Power Blog

Introduction

Hershey (HSY): Dividend Stock Review. As a dividend growth Investor, the best companies to invest in are quality companies with a history of growing revenues and cash flow to enable them to increase their dividends over time. In addition, dividend increases act as a hedge against inflation as investors are technically getting a raise each year the company grows its dividend.

A company like Hershey (HSY) is known worldwide and appears on the surface to be a quality company. Indeed a good start, but before parting with hard-earned cash, it is always wise to carry out your due diligence on a company.

This review will examine Hershey’s business units to see how the it makes money and potential future catalysts. As dividends come from cash to investors, the financial statements are critical to the due diligence process, with particular attention paid to the balance sheet and cash flow.

Hershey - Dividend Stock Review

Hershey (HSY) – Dividend Stock Review

Affiliate

If you are interested in investing in stocks that pay dividends I recommend signing up for the Sure Dividend Newsletter*. It is a good value and one of the best dividend stock newsletters available. There is a 7-day free trial and grace period so it is risk free. The service provides top 10 stock picks each month with discussion of advantages, valuation, and risks. I highly recommend them and use their insights for my own stock research.

Brief Introduction About Hershey

In 1894, Milton Hershey introduced Hershey as a Lancaster caramel subsidiary under the Hershey Chocolate Company. The company has grown to be the largest producer of chocolate and confectionery products in the United States. The company is No. 1 in confection and No. 2 in snacking in the United States.

Besides chocolates, the company also bakes cakes and cookies and sells beverages such as milkshakes and other products. Popular brands include Hershey’s, Reese’s, Kisses, Cadbury, Ice Breakers, Kit Kat, Almond Joy, Jolly Rancher, Twizzlers, Good’ n’ Plenty, Heath, Whoppers, and Milk Duds.

Hershey’s company headquarters is located in Hershey, Pennsylvania, and it distributes its products all over the U.S. and in more than 60 countries globally. The company has massive distribution centers and uses modern technology and industry management systems to run its processes and product production.

According to Warren Buffett, a tycoon, investor, and Berkshire Hathaway’s CEO, two significant rules should govern your investment, and they are;

1). Don’t lose money 2). remember rule number one.

Here’s a detailed overview of the Hershey dividend to help me if it’s worth my investment.

Hershey Overview

Hershey (HSY) – A Dividend Stock Review

Hershey (HSY) Stock Price and Fundamentals

  • Stock Price: $231.99
  • Market Capitalization: $47.55 B
  • PE Ratio: 28.64X
  • Dividend Rate (FWD): $4.14
  • Dividend Yield (FWD): 1.79%
  • Payout Ratio (FWD): 47.4%
Source: Portfolio Insight* (as of December 2, 2022)

Hershey Stock Price

Source: Stock Rover*

Hershey’s Recent Earnings and Growth

Hershey has been growing over the past years and is doing well in 2022. In Q3 2022, Hershey’s net sales improved by 15.6 %, amounting to $2,728.2 million. Over fiscal years 2017-2021, HSY has recorded a gross profit margin of 45.4% to 46.0%.

Acquisitions influence was a 4.1-point headwind, and foreign exchange was a 0.3-point headwind for net sales. But net income fell by 9.3%, to $1.94 per share-diluted or a $399.5 million net income.

Hershey’s marketing, selling, and administration expenses rose by 13.5% in the quarter, boosted by inflation, labor expenses, and technology investments. During their fourth quarter last year, HSY recorded a $556.6 million operating profit.

A company’s operating margin can tell you if it has problems because the margin usually declines before the revenue and profit. The operating margin is calculated by dividing a company’s operating income by its revenue. For example, in 2021, Hershey’s revenue and operating income were $8,971.3 million and $2,048.6 million, respectively.

Hence, their operating margin at that time was 22.8%, which isn’t a bad sign. This income has been progressively expanding. Over the past 5-years, HSY’s operating margin has been between 20.7% and 22.8% exceeding most Consumer Packaged Goods companies.

Revenue has grown from $7.515.4 million in 2017 to $8,971.3 million in 2021.

Hershey Payout Ratios

Companies usually pay out dividends from the profits it earns. However, a dividend may become unideal and unjustifiable if the company pays more than it makes. Therefore, it’s best to be stringent and careful when selecting a dividend growth company. Payout ratios can be calculated using earnings, net income, or free cash flow, as outlined here.

You can determine if the company can afford the dividends by analyzing its net income percentage after tax. For example, HSY paid slightly less than half of its profits or 45.7% as dividends over the trailing 12-month period. Payout ratios of more than 50% usually indicate that the company is almost reaching maturity. However, they can continue to increase their dividend. Payout ratios of more than 65% are riskier than the dividend.

Besides comparing HSY dividends against its profit, it’s also essential to know if it could create enough money to pay dividends. The free cash flow (FCF) payout ratio is around 43.3%, below our cutoff value of 70%.

Usually, Hershey’s dividends are covered by current FCF and profits, implying that their dividends are ideal and sustainable. Furthermore, with a low payout ratio, HSY has a significant safety margin to prevent cutting its dividend.

Growth of Dividends and Earnings for Hershey Stock

With a robust growth prospect, it’s easy for a business to provide the best dividend payment. Dividends tend to grow smoothly and immensely if a company’s earnings per share snowball. Conversely, a company with decreasing earnings per share usually cuts its dividends.

Therefore, Hershey’s investment in its dividend seems like a good prospect due to its rapidly growing earnings. For the last five years, HSY has recorded an EPS GAGR of more than 10%.

Portfolio Insight - Earnings per Share HSY

Source: Portfolio Insight*

It’s rational payout ratio, earnings growth, and profits reinvestment indicate that the Hershey dividends have a higher growth probability due to the strong prospects.

Sometimes, relying on dividends as an income source can be risky, especially when the company starts struggling financially and decides to cut its dividends. Such an occurrence will not only impact your income flow but also make your investment decline.

Dividend volatility describes the measure of a dividend’s risk. This Hershey dividend review will analyze its dividend payment for the last ten years to help have a deeper look at its dividend volatility.

Statistics show that the Hershey’s dividends have been stable in the last decade, which is a great sign. This data indicates that the Hershey stock’s dividends and the company generally have a high resilience.

Compared to its first annual payment in 2012 of $1.56 with last year’s $3.41, Hershey’s dividends have shown significant growth, approximated to be 9.47% annually over this period.

In the past five years, HSY has attained an average dividend growth rate of about 7.26% annually. As a result, Hershey has consistently increased its dividends and earnings growth.

Growing earnings faster than dividends is a positive sign for dividend growth investors and a good sign for sustainability.

Portfolio Insight - Dividend Growth HSY

Source: Portfolio Insight*

Future Growth

While HSY has performed well in the last decade, it’s often easy to wonder if this will be the trend in the upcoming years. Its 2022 outlook is provided considering the period of high inflation and geopolitical concerns following the volatility of the COVID-19 pandemic.

Hershey’s management board expects a 14 to 15% adjusted EPS growth rate and 14 to 15% net sales growth. In addition, the firm expects a 4-to-5-point benefit from Pretzels, Dot’s, and Lily’s Sweets acquisitions.

It also expects an approximately $135 to $140 million interest expense and a $600 million capital expenditure.

Debt Analysis

At the end of Q3 FY 2022, the company had short-term debt of $793.9 million, current long-term debt of $752.2 million, and long-term debt of $3,340.7 million. The cash and equivalents were $327.7.

Here’s a brief definition of some of the terms in the above paragraph: current debt refers to a part of an industry’s debt that’s due in a year, and long-term debts are due in more than a year. Cash and equivalents refer to the money and all liquid securities with three months or less maturity period. Total debt refers to the (long-term + current debt) – cash equivalents.

A company’s financial leverage can be estimated by comparing the debt ratio. For example, Hershey’s total assets are worth $10,832.9 million, and its total debt was $5,213.9 million, with a debt ratio of 0.48. Debt ratios above one usually mean that most of the debt is financed by assets, which can be risky.

The defaulting loan risk usually increases with the debt ratio if the interest rises too. Currently, Hershy has a debt-to-equity ratio of 169%, which has been declining in the past 5-years. However, the company has an interest coverage ratio of over 16X and a leverage ratio of 1.88X. As a result, the rating agencies give Hershey an A/A1 upper-medium investment grade credit rating.

Conclusion on Hershey – Dividend Stock Review

As a dividend growth investor, there is much to like about Hershy. Solid and reliable earnings have paved the way for free cash flow and dividend growth. As a Dividend Contender, the company has returned increasing dividends to shareholders for the past 13 years. Share buybacks were canceled during the worst part of the COVID-19 pandemic but were restarted.

The snacking business will most likely remain a focus. However, investment in innovation should drive sales higher over the long haul. However, we have seen trends that consumers are becoming more health-conscious, which could damage the companies’ expected growth rates in the future. In addition, the balance sheet is in reasonably good order and leaves plenty of room for the company to grow through bolt-on acquisitions.

For Investors purely focused on income and dividend safety, Hershy ticks many boxes, but valuation becomes essential from a total return point of view. As a result, investors may be disappointed that the current dividend yield of 1.78% is lower than the company’s historical 2.19% average. In addition, during the past ten years, shares of Hershey have traded with a P/E ratio between 22.88X and 26.84X earnings. However, the current P/E ratio of 28.24X suggests the company is overvalued, limiting future upside from stock price appreciation.

That said, the company trade at a premium price for a reason. The company managed to increase its profits and sales during the Great Recession. It did so again during the COVID-19 pandemic.

Thanks for reading Hershey (HSY) – A Dividend Stock Review.

Disclosure: None

Originally Posted in dividendpower.org

HSY, Buy

Hershey Company
Return: -14.78%

HSY, Buy

Return: -14.78%


Sound investments
don't happen alone

Find your crew, build teams, compete in VS MODE, and identify investment trends in our evergrowing investment ecosystem. You aren't on an island anymore, and our community is here to help you make informed decisions in a complex world.

More Reads
10 Top Electric Utility Stocks For Reliable Dividends
Image

Utilities are often a favorite of dividend growth investors as they can provide excellent returns and high-income levels.

The Best Utility ETFs for Income Investors
Image

We breakdown the pros and cons of the most popular utility ETFs and rank them by the best ETF for income investors.

Warren Buffett Stocks: Louisiana-Pacific Corporation
Image

Louisiana-Pacific Corporation (LPX) is a leader in high-performance building solutions. The company manufactures engineered wood building products for builders, remodelers, and homeowners across the globe.

The Safest Utility Stocks to Invest in Q4 2022
Image

We found the top 5 safest utility stocks based on volatility, drawdown, dividend policy, and dividend cuts. Why are utilities safe? We'll explain why.

7 High Return-of-Capital REITs
Image

Real Estate Investment Trusts (i.e., “REITs”) are tax-advantaged income vehicles that have become increasingly popular with investors and institutions in recent years.

November 2022 Stock Considerations
Image

With a new trading month already in full swing it is time, once again, to highlight some of my potential stock purchases.

Skyworks Solutions (SWKS) Stock: An Undervalued Chipmaker
Image

Over the past five weeks, the market has been up 14.7%. Also, after the CPI report was issued last Thursday morning, the market and almost all the stocks had a tremendous run-up. In two days, the market is up nearly 7%.

2 Recession-Proof Utility Stocks With Safe Dividends
Image

The Fed has raised the Fed Funds rate six times this year to combat inflation and the last four times at a 0.75% clip. The current 4% rate is the highest in well over a decade. But the Central Bank has indicated that it will take more pain to get that inflation genie back in the bottle.

WestRock (WRK) A Dividend Stock Comeback Story
Image

Yes, this is a random WestRock (WRK) dividend stock, come back story. Why is it a comeback? WestRock decimated their dividend during the height of the pandemic from COVID-19. One of the world’s biggest, packaging companies reduced their dividend to $0.20 per share, per quarter from the high of $0.465.

AEP to Focus Capital Investments on Regulated Businesses, Reaffirms Operating Earnings Growth Rate of 6 to 7 Percent
Image

Reaffirmed 2022 operating earnings guidance range of $4.97-$5.07 per share and midpoint of $5.02; 2023 operating earnings guidance range of $5.19 to $5.39 per share; Five-year, $40 billion capital plan emphasizes investment in wires and renewables

Southern Company - A Buy but Not Without Risks
Image

We assess Southern Company to be a buying opportunity. For retail investors, this may be a good time to dollar-cost average into a position in SO.

Dividend Kings in Focus: V. F. Corporation
Image

V.F. Corporation is a giant in the apparel industry. The company’s annual sales amount to nearly $12 billion, but the company has humble beginnings. It started all the way back in 1899 and has seen many twists and turns in the 123 years since.

October 2022 Passive Income Update – Lower Dividends, Higher Passive Income
Image

The market decided to climb back up this month and then interest rates rose once again. The narrative hasn’t changed both Tiff and Powell have said they aren’t done raising interest rates in previous hikes. Unfortunately Tiff played his cards first hoping Powell would follow suit with a .5% raise and the US raised theirs .75% essentially devaluing our dollar. Inflation for Canadians should rise on this move alone as it now costs us more to buy stuff in usd.

Procter & Gamble Stock: Recession Resistant Dividend Aristocrat
Image

When volatility grips the stock market, as it has this past year, income investors should focus on quality dividend growth stocks.

Dividend Income Summary: Lanny’s October 2022 Summary
Image

This is what dividend investing is all about! Investing in dividend stocks allows YOU to earn dividend income, the best passive income stream! Bias, you better believe it.

10 Compelling ESG Stocks That Pay Dividends Now
Image

In the world of investing, the goal is always to compound wealth as efficiently as possible. We think the best way to do that is to buy high-quality dividend stocks, reinvest the dividends, and stay the course over a number of years. However, investors can also infuse their own personal preferences or beliefs into their investing strategy, and still make great returns.

What are the Dividend Policies of the Top Utility Stocks
Image

When an income investor researches utility stocks, the dividend policy is an important decision factor. Here are the dividend policies of the top utility stocks and what they say about the stock.

AMC Stock Forecast, Analysis, Price & News | Is AMC stock a buy
Image

Based on the stock performance over the previous 8 years, AMC has traditionally increased by 80.5% during the following 52 weeks. Learn more!

Is Planet Fitness a Buy or Sell? PLNT target price
Image

Based in Hampton, New Hampshire, Planet Fitness (NYSE:PLNT) is an American fitness facility franchisor and operator. Let's explore it!

Are we in an Index Fund Bubble?
Image

Are we in an index fund bubble? Should you stay the course and keep investing, or should you sell and look for better opportunities? As with most things there is no one size fits all answer. The markets are in a state of turmoil, so it is easy to see why one would think that avoiding certain asset classes might be a good idea. Let’s take a look at index fund investing so you can see if it is right for you.

Resources for Publishers
Resources for New Investors
Boosted with BossCoin
Financial Literacy Leaders
user_profile
Tom Hamilton
user_profile
Wise Intelligent
user_profile
Mark Robertson
user_profile
Kevin Matthews II
user_profile
Akeiva Ellis
user_profile
Brendan Dale
user_profile
Kenneth Chavis IV
user_profile
Sharita Humphrey