1 Magnificent S&P 500 Dividend Stock Down 42% to Buy and Hold Forever

If you've been around long enough, you will encounter some bumps in the road. This is true for The Hershey Company (NYSE: HSY), whose history dates back to the 1890s. The company is among the most iconic global food and beverage brands today.

The stock has fallen over 40% from its peak, which is shocking considering the broader stock market is at all-time highs. The last time Hershey's stock took a tumble this bad was during a global recession in 2008. However, this time it's about the company. Hershey is dealing with crushing margin pressure and fears that GLP-1 agonists, a popular weight loss drug, are turning consumers away from sweets.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »

I'll admit: It's not pretty at first glance. But if you dig deeper, the stock could be among the best deals on Wall Street. Here is why investors should consider buying Hershey today and holding it forever.

Hershey's a broken stock, not a broken business

As I said, Hershey is experiencing a crisis right now. The company recently completed its 2024 fiscal reporting and released woeful 2025 guidance, calling for earnings per share of $6 to $6.18, down significantly from $9.37 in 2024. The confectionery giant blamed the anticipated decline on higher commodity costs, rebased incentive compensation, and a higher tax rate.

It's not that Hershey isn't selling sweets; management guided for 2% revenue growth for 2025. This is all about the underlying costs associated (primarily) with cocoa prices. You can see that cocoa prices have exploded like a meme stock in a market bubble:

Cocoa Bean Price data by YCharts

The reason? Roughly 70% of the world's cocoa comes from West Africa. Adverse weather has hurt crop yields and disrupted the global supply. Hershey has combated rising costs with price increases, but you can only do that so much. This year, Hershey will feel more of the brunt of high cocoa prices. According to industry analysts, cocoa prices should begin to ease this year, barring further disruptions to production.

What about weight loss drugs? Right now, fears seem more like bark than bite. Hershey's management noted specifically on its fourth-quarter earnings call that it's not seeing any material impact on sales due to GLP-1 agonists. It will take time for things to normalize again, but this is all external to Hershey. Is this unfortunate? Of course. However, it doesn't mean Hershey is a lousy business.

Yes, Hershey is a quality business and a proven compounder

You never want to let share prices alone dictate your view on a business. Stocks go up and down. However, if you buy and hold quality companies, they should drift higher over the long term.

Hershey is a world-class company for reasons far beyond its well-known snacks and candy brands, such as Reese's, Twizzlers, Almond Joy, Skinny Pop, and more. The business has thrived through good and bad economies, becoming a cultural staple consumers (primarily Americans) buy year-round.

The business is also highly profitable and efficient. Hershey's return on invested capital (ROIC) has averaged over 21% over the past five years. Additionally, $0.15 to $0.20 of every revenue dollar generates free cash flow each year. Thus, you don't need tremendous growth to create shareholder value when you're profitable and efficient with your capital.

Hershey's stock has slumped in recent years; it has trounced the S&P 500 index throughout history. Shares have returned over 4,200% since 1989, including the stock's 42% drop! As I said above, Hershey's current woes likely don't reflect the business, so investors can be more optimistic about the stock reverting to its glorious winning ways of past years.

And it happens to be the cheapest it's been in years

Hershey faithfully pays a dividend, which management has increased annually for 15 consecutive years. The company can technically afford its dividend with guided 2025 earnings, though it will be much tighter than in recent memory, so investors should keep that in mind.

That said, investors can value a dividend stock by its yield. You can see that Hershey's dividend seldom yields this much:

HSY Dividend Yield data by YCharts

There are two sides to the coin. Hershey's stock is the cheapest in years from the perspective of its dividend. At the same time, there's more risk in Hershey's stock than in recent memory. The key takeaway is that investors must decide whether they think Hershey's problems will disappear over time.

If so, Hershey could generate tremendous investment returns as it eventually reverts to its historical norms. The evidence suggests that Hershey will rebound as cocoa prices ease. Of course, that may take time. Until then, Hershey remains a wounded blue chip stock worth rolling the dice on in a diversified portfolio.

Don’t miss this second chance at a potentially lucrative opportunity

Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.

On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:

• Nvidia: if you invested $1,000 when we doubled down in 2009, you’d have $360,040!*
• Apple: if you invested $1,000 when we doubled down in 2008, you’d have $46,374!*
• Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $570,894!*

Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.

Learn more »

*Stock Advisor returns as of February 3, 2025

Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Hershey. The Motley Fool has a disclosure policy.