Over the past 10 years The Hershey Company (NYSE:HSY) has been paying dividends to shareholders. The company currently pays out a dividend yield of 2.6% to shareholders, making it a relatively attractive dividend stock. Should it have a place in your portfolio? Let’s take a look at Hershey in more detail.
5 checks you should use to assess a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
- Does it pay an annual yield higher than 75% of dividend payers?
- Does it consistently pay out dividends without missing a payment of significantly cutting payout?
- Has the amount of dividend per share grown over the past?
- Is its earnings sufficient to payout dividend at the current rate?
- Will it be able to continue to payout at the current rate in the future?
How well does Hershey fit our criteria?
The current trailing twelve-month payout ratio for the stock is 49%, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect HSY’s payout to increase to 57% of its earnings. Assuming a constant share price, this equates to a dividend yield of 2.9%. Furthermore, EPS should increase to $5.63. The higher payout forecasted, along with higher earnings, should lead to greater dividend income for investors moving forward.
If you want to dive deeper into the sustainability of a certain payout ratio, you may wish to consider the cash flow of the business. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. HSY has increased its DPS from $1.19 to $2.89 in the past 10 years. During this period it has not missed a payment, as one would expect for a company increasing its dividend. This is an impressive feat, which makes HSY a true dividend rockstar.
Compared to its peers, Hershey has a yield of 2.6%, which is on the low-side for Food stocks.
With this in mind, I definitely rank Hershey as a strong dividend stock, and makes it worth further research for anyone who likes steady income generation from their portfolio. Given that this is purely a dividend analysis, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. There are three relevant factors you should look at:
- Future Outlook: What are well-informed industry analysts predicting for HSY’s future growth? Take a look at our free research report of analyst consensus for HSY’s outlook.
- Valuation: What is HSY worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether HSY is currently mispriced by the market.
- Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.