The Hershey Company (NYSE: HSY) is a very simple business, one that is very easy to explain to anyone in the world: they sell chocolates and snacks, and they have been doing it for more than a century now. Here is a small list of reasons why investors should consider Hershey for their dividend portfolio.
Marketshare
Hershey’s brought in $4.946 billion in sales from North America in the first nine months of the current fiscal, accounting for nearly 88% of the company’s revenue. With the bulk of its revenue tied to the company’s performance in North America, Hershey’s cash flow is extremely stable.
The company is the market share leader in the crucial chocolate segment, holding 45.7% of the market, and in the mint segment, where it holds 39% market share.
Despite being the number one player in the U.S. confection and snack market, Hershey’s managed to further strengthen its leadership position by increasing its market share from 29.3% in 2011 to 31.2% in 2016.
The market-leading position in these two crucial segments allows Hershey to enjoy an above-15% operating margin, which is comparatively good for the industry segment Hershey operates in.
HSY data by GuruFocus.com
Low debt position shows there is enough room for dividend growth
Hershey had $2.054 billion in long term debt and $275 million cash on hand at the end of the third quarter of the current fiscal. The debt levels are extremely manageable, as the company only paid $72 million as interest during the first nine months of the current fiscal, while reporting an operating profit of $850 million.
Hershey paid $392 million as dividends during the first three quarters, giving a payout ratio of 65.22%. Though the payout ratio seems a little high, the clean balance sheet and stable cash flows will allow Hershey to keep increasing the dividends at a steady clip over the next several years.
Dividend History
Hershey announced a third quarter dividend of 0.656, a six percent increase compared to last year. Annual dividends have increased by nearly 53% in the last five years to reach 2.40 in 2016 from 1.56 in 2012.
Hershey has been smartly buying back shares while paying its dividends as well. The steady buyback of shares has keep the company’s total dividend bill under control. In the last ten years Hershey has spent nearly $5 billion towards dividends and share-repurchases.
Current Yield
The Hershey Company is now trading with a dividend yield of 2.44%. The stability of the cash flow and their market leadership in the world’s number one economy makes Hershey an attractive investment for dividend investors.
Disclosure: I have no positions in the stock mentioned above and no intention to initiate a position in the next 72 hours.
