If I Could Only Buy and Hold a Single Stock, This Would Be It

Key Points

• This Dividend King food maker has a historically high 4.7% dividend yield.

• The company has not been performing well as a business for a little while.

• Management has a very strong partnership with the company's largest shareholder.

• 10 stocks we like better than Hormel Foods ›

From a top-level view, a consumer staples company with a historically high 4.7% yield and a Dividend King status should be very attractive to most income investors. Of course, the yield is so high because the company is struggling today, so the stock, down around 55% from its all-time highs, is deeply unloved.

But I'm a longtime shareholder who's not going anywhere. In fact, I would buy the shares again today if I didn't already own them. Here's the company and my logic on why it is a great buy-and-hold stock right now.

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I'm currently underwater on this food maker

The company I'm speaking about is Hormel Foods (NYSE: HRL), which I've owned since 2017. That said, I've added to my position multiple times as the stock languished. At this point, Hormel is my worst-performing investment. I might even sell it temporarily to capture my losses so I can offset gains I have elsewhere in my portfolio. All I need to do is avoid the wash sale rule when I buy it back.

I'm not worried that I'll miss out on a sudden stock advance, because it will take time to fix what ails the company.

Image source: Getty Images.

Without going into too much detail, Hormel's portfolio of branded food products isn't firing on all cylinders today. To put some numbers on that, volume through the first nine months of fiscal 2025 fell 2.5%. While net sales rose 1.9%, driven by price increases, the company's costs rose more quickly than sales, leading to a rather large 6.5% decline in segment profits.

Things got so bad that the board of directors recently chose to part ways with the CEO, Jim Snee, bringing back his predecessor, Jeffrey Ettinger. Ettinger is working to right the consumer staples maker's ship and, at the same time, training John Ghingo to take over for him. Shaking things up by bringing back a well-respected leader is probably the right call, even if the fix here is likely to be a multiyear effort.

Given Hormel's status as a Dividend King, it seems likely that it will muddle through this period. You don't increase your dividend annually for 50+ years without having a solid plan that gets executed well in both good times and bad. This is a bad time, for sure, but the company is clearly taking action to get back on track.

HRL data by YCharts

The ace in Hormel's shareholder base

I believe Hormel will get through this, but the real question for a dividend investor like me is whether or not it can do that and maintain its dividend. There are reasons to worry about that. For example, it isn't uncommon for a new CEO to cut a company's dividend, taking a kitchen sink approach to fixing the problems being faced. Essentially, get every bit of bad news out so just about anything the new leader does will end up looking like a success. Notably, the trailing-12-month dividend payout ratio has risen steadily as the stock has declined and is now over 80%.

No wonder why the yield is so high. But there's a wrinkle here that long-term investors should understand. The Hormel Foundation, which controls roughly 47% of Hormel's stock, is your co-investor. The Hormel Foundation uses the dividends it collects from Hormel the company to further its philanthropic efforts. It wants a reliable and slowly growing dividend, just like you probably do. That's exactly what I want as a dividend investor.

Since Hormel really can't do anything big without the approval of The Hormel Foundation, the dividend is likely safe. And, just as important, Hormel can make the right decisions for the business, even if they require time to play out. It doesn't have to make short-term choices to appease the mercurial investors on Wall Street. I'm happy to sit tight knowing that The Hormel Foundation is on my side. And I would buy Hormel again for the same reason, if I didn't own it.

Things may not be as bad as they seem

The financial performance noted above was for the first nine months of fiscal 2025. The third quarter of that year was actually not terrible, with volume up 2.7% year over year. Costs are still outpacing the company's ability to raise prices, so segment profits were off by 3.4%. But the company's performance may not be quite as dire as some investors fear. A sustainable upturn will take time, but the third quarter shows that things may not be as bad as they seem.

The leadership change, however, is likely to lead to some business changes that could make financial results a bit volatile in the near term. But given the company's long-term success, its historical commitment to the dividend, and the involvement of The Hormel Foundation, I still think Hormel is a great business well worth owning today.

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Reuben Gregg Brewer has positions in Hormel Foods. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.