I'm a dividend investor and am trying to build a portfolio of stocks that will provide me with retirement income. When I find an attractively priced stock with a solid business and attractive dividend history, I dig deep.
That's what led me to buy it procter and gamble (NYSE:PG) When Wall Street didn't love me.and why i like it so much hormel food (NYSE:HRL) While I am not loved today. This is why I don't sell either dividend, which is a consumer staple.
Procter & Gamble: We took a risk, and it paid off.
Procter & Gamble has increased its dividend significantly every year for 68 consecutive years, putting it firmly in the dividend king camp. I bought it many years ago when the company was rebalancing its portfolio. Simply put, over time, the product lineup became bloated and unwieldy.
Management has made the decision to sell smaller, less profitable brands so that we can refocus on our most important brands. But Wall Street feared the company had lost its way and pushed yields toward 4%. This is a historically high number for P&G and I jumped at the chance.
It currently yields only 2.5%, but the dividend has increased every year since I bought it. I have a lot of capital gains, but I don't intend to profit from them. The reason is simple. I bought P&G because it is probably one of the best-run consumer staples companies on the planet.
The consumer staples sector is generally fairly reliable, as companies like P&G make products that are used every day and purchased frequently. Toothpaste, laundry detergent, toilet paper, etc. are essential items that we cannot live without.
P&G also owns some of the most well-known brands in the field. The company is a large, diversified company and an important partner for retailers. Most importantly, P&G puts a lot of effort into research and development. This keeps the company's products at the forefront of the industry.
And retailers highly value it because it allows them to charge higher prices and expand categories. I'm biased towards value, so I probably won't buy P&G stock today (it seems well valued), but I won't sell it today or hopefully ever again.
I achieved full standing at Hormel.
Hormel is a completely different story. The company's current dividend yield is 3.2%, which is near the high end of its historical yield range. And, like P&G, Hormel is the dividend king, increasing its dividend every year for 58 years. As with P&G, it's those types of stories that grab my attention.
The downside to food maker Hormel's conflict with investors is very real. For example, the company has not been able to pass on rising costs to consumers like its peers, has struggled with avian influenza affecting its supply chain, and acquired Planters as well as the nut division of the snack niche. I did it, etc. The economy is slowing and the slow restart of the coronavirus in China is hampering Hormel's global expansion plans.
These are real problems, but they will be resolved eventually. And given the long history of dividend increases, I'm willing to give management the benefit of the doubt. Over the past half century, we have overcome difficult times. Just like when P&G was struggling, I think it will happen again.
But Hormel has one more unique drawback that makes me willing to take some risk. The company's largest shareholder is the Hormel Foundation, which donates the dividends it collects from Hormel to charities.
The Hormel Foundation's forecasts are basically in line with my expectations, and given that it controls almost 47% of the voting power of the stock, the Hormel Foundation has a significant say in the company. Even if Hormel's management has lost its way, I don't think the Hormel Foundation is sitting on its hands. This effectively means that I have an advocate who shares my desire for a reliable dividend.
Take P&G as an example and take action now with Hormel
It took several years for P&G to reset its business and get back into growth mode. I'm sure Hormel is the same way. But P&G is a good example of what can happen when you buy a company that is doing well, even though it is facing problems that are likely to be temporary.
You can't buy P&G cheap anymore, but Hormel isn't popular right now, so you can still buy it if it's on sale. This is exactly what I have been doing with P&G, with the goal of holding it forever.
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Reuben Gregg Brewer holds positions at Hormel Foods and Procter & Gamble. The Motley Fool has no position in any stocks mentioned. The Motley Fool has a disclosure policy.
2 Great Dividend Stocks I 'Never' Sell was originally published by The Motley Fool.
