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Why Hershey (HSY) is a Great Dividend Stock Right Now

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Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.

While cash flow can come from bond interest or interest from other types of investments, income investors hone in on dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a dividend as a percent of the current stock price. Many academic studies show that dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

Hershey in Focus

Headquartered in Hershey, Hershey (HSY - Free Report) is a Consumer Staples stock that has seen a price change of -0.46% so far this year. The chocolate bar and candy maker is currently shelling out a dividend of $1.37 per share, with a dividend yield of 2.95%. This compares to the Food - Confectionery industry's yield of 1.25% and the S&P 500's yield of 1.57%.

Looking at dividend growth, the company's current annualized dividend of $5.48 is up 23% from last year. Over the last 5 years, Hershey has increased its dividend 5 times on a year-over-year basis for an average annual increase of 12.12%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Hershey's current payout ratio is 56%. This means it paid out 56% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for HSY for this fiscal year. The Zacks Consensus Estimate for 2024 is $9.60 per share, which represents a year-over-year growth rate of 0.10%.

Bottom Line

Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. But, not every company offers a quarterly payout.

High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, HSY is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).

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