The Hershey Company (NYSE: HSY) hasn’t had a great year in terms of its stock price performance. Shares of the confectionery giant are down 14% year-to-date due to slowing growth in China, a key market for the company.
But while the candy stock has had a poor start to the current year, it’s opening up a great buying opportunity for new investors. Hershey is a time-tested business that has thrived through thick and thin over many decades. It has rewarded its shareholders along the way with regular dividends and growth.
Plus, the issues that caused Hershey to reduce its full-year financial projections should be only temporary. The company still has a long trajectory of growth ahead of it, particularly in the emerging markets.
Hershey is rarely on sale, but it is right now. For investors looking for a sweet dividend stock, Hershey should be on the shopping list.
Full-Year Forecast Melts
Last month, Hershey cut its forecast for earnings over the course of the full year. Adjusted profit, which strips out certain one-time items like effects from acquisitions and divestitures, is projected to fall between $4.10 per share and $4.18 per share – down from a previous forecast of $4.30 per share to $4.38 per share. The midpoint of the company’s updated guidance, $4.14 per share, is significantly below the average analyst forecast, which calls for $4.32 per share in profit.
The reason for the reduced forecast is that Hershey sees slower growth out of China than initially anticipated. The company said its sales in April and May were below expectations, due to the slowing Chinese economy and constrained consumer spending there. Plus, the strengthening U.S. dollar is weighing on international revenue growth as well.
Future Growth Plan Intact
Still, investors shouldn’t get overly bitter about Hershey and its growth prospects. The company has still targeted China as a major long-term opportunity, which makes complete sense, since China is a premier emerging market and holds a billion potential customers. Hershey generates approximately 85% of its revenue from North America, which leaves plenty of room left for future international growth.
The company believes China will generate $450 million in sales this year, which would make the country its second-largest market. Hershey’s acquisitions added 1.6% to sales growth in the first quarter this year, and growth in China will continue to be fueled by its acquisition of Chinese candy maker Shanghai Golden Monkey.
Aside from China, Hershey has a separate avenue of growth to look forward to via a new product line. Earlier this year, it acquired Krave, a producer of beef jerky. Market research firm NPD estimates that meat snacks like beef jerky are growing at an 18% annual rate, and are projected to be a $2.5 billion opportunity in the U.S.
A Long Dividend History
Hershey has a long track record of rewarding shareholders with dividend payments. In fact, it has paid 342 consecutive quarterly dividends.
The stock yields 2.4% right now, which is higher than usual because of its falling stock price. And Hershey is a strong dividend grower. Last year it increased its dividend by 10%, and will very likely increase the dividend again this year.
Hershey may not grow as much as expected this year, but the future remains bright. Income investors should see a lot to like about Hershey and its tasty dividend.
Dividends for Every Month of the Year
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