Savor Steady Dividends With These 2 High-Yield Value Stocks

Key Points

• Consumer staples stocks like Hormel and Campbell Soup Company are high-quality choices for income and income-growth investors.
• The two trade near long-term lows and in the low ends of their respective P/E ranges while paying higher-than-average yields.
• The outlook for 2025 is for growth and distribution growth, and the analyst's sentiment has begun to warm. 

Consumer staples stocks offer a lot for income investors. They aren’t flashy, they don’t grow robustly, but their blue-chip businesses are entrenched and produce cash flow that stands the test of time. More importantly, the consumer staples group provides a substantial capital return, often including share buybacks and robust dividends. The dividends are what counts. Stocks like Hormel NYSE: HRL and Campbell Soup Company NASDAQ: CPB pay consistent dividends with an outlook for distribution growth that helps to drive their stock prices higher over time.

Today’s takeaway is that Hormel and Campbell offer significant buying opportunities for investors. The stocks are trading at long-term, multi-year lows and the low ends of their valuation range. Hormel is trading at a 25% discount and Campbell at 22%, with yields at the high end of their ranges. Each yields more than 3% in late 2024, well above their long-term averages and 3x the broad-market average. It may take time for market cyclicality to drive these stocks back to the high ends of their P/E ranges, but the move is likely, and it will generate high double-digit total returns for investors with the time and foresight to wait. 

Hormel Reaches Inflection Point: Will Revert to Growth in F2025

Hormel has struggled for years with post-pandemic normalization, supply chain issues, and chronically low commodity prices but is on track to revert to growth in F2025. The FQ4 2024 results show that the year-over-year decline is narrowing, and the guidance, while below consensus, forecasts annual growth. Earnings are also expected to grow and outpace the top-line advance by double. 

The more significant detail from F2024 is that the margin is holding steady. The company leaned into efficiency over the past twelve months and sustained a 9.8% operating margin for the quarter. The net result is that net earnings are growing, and the adjusted EPS is flat compared to last year, sustaining the capital return outlook. 

The capital return outlook is robust, with 2024 returns hitting record levels. Dividend payments topped $150 million and amounted to less than half the operating cash flow. The company has increased its distribution for nearly 60 consecutive years, a sign of stability, and can continue to raise it for the foreseeable future. The annual increase won’t be robust, but the mid-single-digit CAGR is sufficient to offset inflation. Analysts rate HRL stock at a consensus of Hold in late 2024 and view it fairly valued near $42.50. 

Campbell Soup Company Sustains Growth in F2025

Campbell Soup Company’s FQ1 2025 results show it is sustaining growth in F2025. The company’s Q1 results were better than expected, with revenue up by 10%, and guidance was lifted for the year, which is a tailwind for the stock price. The company expects growth to hold steady in the 9% to 10% range this year with a relatively steady margin. The company widened its gross margin for the quarter, but increased costs and higher interest expenses offset it. 

The salient point is that Campbell is a growing concern, trading at a deep value to its peers, its historical norm, and the broad market while paying a reliable dividend worth 3.2% in yield. The company hasn’t increased the payout for several years but has in the past and may do so again in 2025. The payout ratio is low at roughly 35%, leaving the company with sufficient flexibility to increase the capital return. 

The analysts' trends support this market. The analysts’ sentiment shifted from negative to positive mid-year, lifting the consensus rating from Reduce to Hold and increasing the price target by 8%. The consensus price target implies a 15% upside from critical support levels, and the revision trends suggest higher price points will be reached. The high-end range is near $60 and another 15% gain above the consensus.