Investing

This is my buy for October 2017

So its already October! That means a new capital injection into my portfolio for a grand total of €250. Last month I made not one but two buys growing my forward annual income with a nice jump in cash (birthday!). Since I was heavily into the tech stocks in recent months I’ve decided to diversify again and saw one of the dividend aristocrats in a postion for me to pull the trigger. Maybe I really should start doing more side-hustles to up the amount of capital I can deploy…

The buy for this month is…..Hormel Foods (HRL)!  I purchased 10 shares @ $31,59.

hormel_logo

  Hormel Foods
P/E 19,5
Yield 2,15%
Payout Ratio 40,43%
Trackrecord Aristocrat: 51 years (!) of dividend increases
Valuation $1,04 above 52-week low | $7,25 below 52-wk high

With a quarterly dividend of $0,17 this should bring me (10 x 0,17 x 1 (one payout in the last quarter) -15% tax = $1,45 closer towards my goal for 2017. My forward annual income should ofcourse increase with four times that amount: $5,78 to a total of $170,93.

As always your comments are much appreciated.

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13 thoughts on “This is my buy for October 2017

  1. Definitely a solid pick. I’ve looked at Hormel in the past but never pulled the buy trigger. I think it is good timing. With the markets continually hitting new highs, the consumer staples stocks have not fully participated and in some cases have been beaten down a bit. Hopefully Hormel represents good value for you in a historically pricey market. Tom

    Liked by 1 person

  2. Hi Mr. Robot,
    I think it’s a solid company with stable dividends. It’s never a mistake to invest in such a company. Maybe it’s boring but that’s what we, dividend investors, need!
    -BI

    Liked by 1 person

  3. Hi Mr. Robot,

    Well let me start with the positives first as you probably know by now how I feel about process food companies 🙂

    On valuation basis, you bought HRL at its 5-yr low valuation at a blended P/E of about 20, so good job on that. Company has a very strong balance sheet with a S&P credit rating A, which is a reflection of small amount of debt on its books, also indicated by a 5% debt/cap ratio.

    On dividend growth, it has one of the fastest growing dividends I’ve seen for a food company, with a 5-yr Ave DGR of 18%. That’s pretty remarkable, though I doubt it if it would continue unless company makes some big changes to its product and improve consumer perception.

    As for negatives, at the current price, HRL is still expensive for a food staple company on long-term basis. For most of its history, the stock has traded at or slightly above its P/E multiple of 15. So you got about a 21% downward risk from its current price.

    For the short 3 years when the stock was trading at higher multiples of 20’ish, if we assume that stock would go back up to that multiple, you would also have an upside of about 21%.

    Therefore, at first it seems like you bought it right in the middle of the high/low valuation, but that is not true if you look at longer than just the last 3 years.

    For most of its history, HRL has a tendency to hover around P/E of 15 rather than 20, and that makes sense for a food staple company. The last 3 year short-term expansion in valuation of such food stocks was mainly driven by yield hungry investors like us due to a very low interest rate environment. Investors like us piled into these slow growing food/staple companies and took them to the sky.

    Now, it’s time to come back to the ground, as we are in an increasing interest rate environment. A near 2% dividend is not good enough given the risks that market poses to such stocks. A stock like this would have to yield at least 3% or even better to be attractive in current environment.

    Therefore, the probability of it trading at a much lower multiple based on its historical valuation and growing interest rate environment, is significantly higher than reaching a higher multiple. At the current price, you have more downward price risk than upside.

    Sorry, I’m not trying to ruin your day, just telling you what I think of HRL and why it is important to look at long-term valuation.

    On a more positive note, if you bought it only as a dividend play then you should be fine for a while, but I would expect dividend growth to slowdown from here.

    You should also be aware of the headwinds these companies are facing due to growing trends in healthier less process food consumption. Companies like HRL face significant challenges both in competition as well as improving their image and gaining trust from new generation of consumers (Google Hormel Lawsuits).

    Take care,
    Mr. ATM

    Liked by 1 person

    1. I would like to thank you Mr. ATM, for your very extensive reply. You definitely show me that I have a lot to learn in this whole investing world.

      The buy was indeed a pure dividend play as are all my buys.

      I’ve discussed the buy also with Mrs. Robot and she is not a firm supporter of this buy either due to more ethical reasons with regards to animal welfare. Although I did research their take on animal welfare and was comforted by their views, audits and processes for treating animals justly. Still its something that is worth noting since it could still lead to a sell of this stock later on.

      You make an excellent analysis and I hope to use the knowledge I gain from your posts to do better research next time. I was wondering where you get all your information from just free sources like Google or Yahoo or payee services?

      Like

      1. Mr. Robot,

        You are most welcome! Well, I like to read a lot, that’s pretty much all I do all day. I read company related articles, analyst presentations, news, stock analysis, and pretty much anything I can get my hands on. As for data, I use CFRA reports (available through broker for free) as well as cnbc, morningstar, and fastgraphs. I don’t use Yahoo anymore, but it’s a good source of free financial data as well. Lot a times, I just go to company’s websites and get their latest investment presentation which has ton of information about their business.

        Take care,
        Mr. ATM

        Liked by 1 person

    1. Hi DM, It varies a bit. To be honest I could (and should) do a lot more research before my purchases but I find that sometimes a lot of work has already been done by my own watch list via Google spreadsheet, other bloggers and for example Seeking Alpha members that post their analysis about stocks I’m interested it in so that saves me time (of course I fact check).

      So I can’t really give you an estimate but since my purchases are usually monthly I start doing some digging and investigating a few days prior to my capital deployment.

      Thanks a lot for your comment, if you want to know more please let me know.

      Like

  4. Well, I don’t have as much analytical insights as Mr. ATM, but I think you made a good decision by purchasing HRL. It has an impressive dividend history and given the fact that your purchase was based mainly on the dividend play, I think it was a good one. HRL is also in my portfolio too and I add to it every month.

    Liked by 1 person

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