Investment Opportunity: Dividend-Yielding Share Experiencing a 35% Decrease, Worth Consideration Now
Hershey's allure as a high-yield stock is somewhat questionable, but with a dividend yield of 3.2%, it's more enticing than the 1.2% offered by the S&P 500 or the 2.5% from average consumer staples companies. Let's delve into the reasons behind Hershey's current situation and potential investment opportunities.
Worry on Wall Street
Despite Hershey's popular chocolate, pretzel, and popcorn snack offerings, investors are concerned with two primary issues. First, the unpredictable cocoa market is causing prices to skyrocket, and Hershey, like any other conventional manufacturer, will have to absorb the costs. The company has hedged against this for 2024, but commodity price volatility is an usual part of business, and the hedges won't last forever.
Meanwhile, the surge in popularity of effective weight loss drugs that curb appetite and encourage healthier food choices presents another long-term challenge to the confectionery industry. If people eat less overall and opt for nutrient-dense foods instead of calorie-heavy, sugar-rich options, Hershey's profits could suffer.
While these problems aren't insignificant, they might not be as grave as feared.
Historically Inexpensive and Growth Potential
Hershey's stock price has plummeted by 38% since its peak, making it an enticing investment opportunity for dividend growth investors. Over the past decade, Hershey's revenue has grown at an average of 4.5% annually, and earnings per share increased nearly 10% per year. Moreover, Hershey has dramatically raised its dividend at an annualized rate of 10%, which is impressive for any company.
Hershey has dealt with volatility in the past and likely has the capability to navigate current challenges. For instance, the company could increase prices in response to the growth in cocoa costs. As for the weight loss drug trend, studies suggest that long-term medication adherence rates are low, which might mitigate the drugs' impact on sales.
Buy When Fear Abounds
Buying a stock when the rest of Wall Street is selling it can be tough, but that's often the best time to invest. If the current negative events are temporary, purchasing Hershey shares now could turn out to be a wise move. The stock's strong history called for a fair amount of optimism, given the potential for long-term returns and the company's consistent dividend growth.
Investing in Hershey may require a certain level of patience, as the impact of commodity volatility and weight loss drugs could unfold over an extended period. However, the company's recent struggles with a mild impact on sales due to these trends provides a glimmer of hope that their long-term effects may not be as detrimental as previously assumed.
- Given the 38% drop in Hershey's stock price since its peak, investors who are focused on dividend growth might find the current situation as an opportunity to invest, considering the company's impressive average revenue growth of 4.5% annually and earning per share increase by nearly 10% over the past decade.
- Despite the concerns over the unpredictable cocoa market and the impact of effective weight loss drugs, Hershey has a history of navigating volatility and has shown resilience. As an example, the company has dealt with previous price increases due to cocoa costs by raising their product prices significantly.
- Hershey has also demonstrated a strong commitment to dividend growth, having increased their dividend at an annualized rate of 10% over the years, which is an impressive feat for any company. This consistent dividend growth adds to the attractiveness of the stock for investors seeking income.
- The surge in popularity of effective weight loss drugs and the resulting affect on cocoa market prices have ultimately resulted in a warning for investors. However, a cautious investor might find that these current challenges present an opportunity to invest in Hershey at a potentially lower price, with the potential for long-term returns and continued dividend growth, as suggested by the company's past performance.
