You usually don’t find great companies executing at the top of their game that also happen to be on sale. Stocks that are on sale are more commonly fallen angels, which are great companies that are facing some near-term hardship. From an investment point of view, the goal is to buy the fallen angels that seem likely to earn their wings again.

That is the backstory behind Hormel Foods (NYSE: HRL) right now.

Start Your Mornings Smarter! Wake up with Breakfast news in your inbox every market day. Sign Up For Free »

If you are looking for a dividend growth stock the very first thing to consider here is Hormel’s status as a Dividend King. It has raised its dividend every single year for 58 consecutive years. You don’t build a streak like that without doing something right along the way. And, to focus on dividend growth, the annualized dividend growth rate over the past decade was a huge 11%. That’s over 3 times the historical growth rate of inflation, which means the buying power of Hormel’s dividend has been growing over time.

Also of note, Hormel’s dividend yield is around 3.7% today. That’s much higher than the 1.2% you’d collect from an S&P 500 index fund or even the 2.6% from the average consumer staples stock, using the Consumer Staples Select Sector SPDR as an industry proxy. Hormel’s yield also happens to be near the highest levels in the company’s recent history.

Hormel’s business, meanwhile, is backed by dominant brands focused largely around protein. The list includes, but is not limited to, Hormel, SPAM, Skippy, Planters, Applegate, Jennie-O, and Columbus. Outside of the protein, the company also owns Wholly Guacamole and distributes Herdez. Behind the scenes is the company’s strong position in food service, where it sells pre-cooked meat products. And it has been expanding its portfolio internationally, as well. From a big-picture perspective, there’s a lot to like about Hormel today.

Of course, a company doesn’t end up with a historically high yield for no reason. Hormel’s business makeup is attractive, but it just isn’t hitting on all cylinders today. In the third quarter, the company’s adjusted earnings fell 8%. Sales dropped 2%. And the volume of product it sold was off by 7%. Those are not the types of numbers investors want to see and continue a recent trend of underperformance.

This is why Hormel’s stock price is trading roughly 45% below its five-year high-water mark. The list of problems is fairly long, including difficulty passing on inflation-related cost increases, a slow pandemic recovery in China, avian flu, and a slowdown in the nut segment of the snacking category (which happened right as the company bought Planters). Individually all of these problems are solvable, but all of them at the same time sound pretty bad.

Story Continues