Consumer staples makers sell products you use every day, like food, candy, cleaning supplies, and deodorant. You buy these products in good markets and bad ones, and so does everyone else. But concerns about near-term margin pressures, and some company-specific issues, have left shares of Hershey(NYSE: HSY), Hormel(NYSE: HRL), and Unilever(NYSE: UL) well off of their respective 52-week highs.
Here's why you might want to buy these dividend stocks today, all of which can be found in plain sight in your grocery store.
1. Hershey's candy is the foundation
One of the big concerns around Hershey today is the potential impact of weight-loss drugs. It seems unlikely that the candy that underpins Hershey's business will suddenly stop being eaten. And yet the stock is down nearly 30% from its 52-week high and the yield is up to 2.4%, which is fairly attractive, historically speaking.
The company is vastly underperforming the broader consumer staples sector. And yet Hershey remains a dominant player in the U.S. confection space, with sales up 11% year over year in the third quarter of 2023 and adjusted earnings higher by nearly 20%.
In the longer term, Hershey has growth opportunities in foreign markets, largely driven by its confection business, and in the snack space (with pretzels and popcorn products). Those growth opportunities are supported by a strong U.S. confection operation. If you think the weight-loss drug concern is overblown, you might want to buy Hershey.
2. Hormel is struggling, but moving in the right direction
There's no way to candy coat this one. Hormel's business is not hitting on all cylinders today, and the stock is down nearly 35% from its 52-week high. The 3.3% dividend yield, while not massive, is near its highest levels ever, historically speaking. The problems are many, but all seem likely to pass in time.
To give a quick list, Hormel hasn't had as much success as peers in passing on rising costs, avian flu has created supply problems in its turkey operations, the Planters brand hasn't performed as well as hoped (though it has performed well relative to the nut category), and China's post-pandemic rebound has been weaker than expected.
None of these headwinds seems structural in nature, though. If you can handle some near-term uncertainty, Hormel and its various industry-leading food brands should be on your shopping list.
3. Unilever is turning toward growth
Unilever has a much more diversified business than either Hormel or Hershey as it offers both food and consumer products like deodorant. The company has been through a huge amount of change since 2019, including two CEOs, a home country relocation, and a corporate restructuring. And that was on top of the problems posed by the coronavirus pandemic.
The new CEO has inherited a business that is on much more stable ground and possesses an increasingly growth-focused portfolio. The shares are off by nearly 15% from their 52-week highs, and the dividend yield is 3.9%, which is historically attractive.
The interesting thing is that the new CEO recently updated Wall Street on his business plans, and there was a collective yawn. The complaint was that the plan was just like every other plan in the industry, as if focusing on the most profitable brands, investing in innovation, simplifying the corporate structure, and tying pay to performance were somehow bad ideas.
In fact, they are exactly the ideas that helped consumer staples peer Procter & Gamble turn in a long string of strong financial results. Unilever has been around for a very long time and it has a collection of iconic brands. It seems like a good risk/reward bet that simple plans, after a period of great change, can help lead to better long-term performance.
Down and out, but still attractive
Hershey, Hormel, and Unilever are all out of favor for different reasons. But these are all important consumer staples names with well-known brands and strong businesses. The problems they are facing vary, from new weight-loss drugs at Hershey to transitory business headwinds at Hormel to a new CEO trying to get Unilever's growth up to a more attractive level.
But given the big price drops, these three companies and their products not only sit in plain sight at your local grocery store but should be on your investment radar right as well now.
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Reuben Gregg Brewer has positions in Hershey, Hormel Foods, Procter & Gamble, and Unilever. The Motley Fool recommends Hershey and Unilever Plc. The Motley Fool has a disclosure policy.
