Hershey (NYSE: HSY) stock has risen 13% since the start of 2016.[ad#Google Adsense 336×280-IA]And there could be further gains in store.
Hershey has a strong brand and a leadership position in its industry.
The Hershey dividend is 2.5%, which is above the 2% average payout of the S&P 500.
The company faces a bright future ahead, with plenty of growth opportunities in the U.S. and overseas.
Hershey should continue to offer investors a mix of growth and dividends.
Growth in New Markets
Hershey has a large and highly profitable business, mostly in the U.S. Nearly 90% of Hershey’s annual revenue comes from the U.S.
Its international exposure stands to increase going forward. Emerging markets like China have high growth potential for the company.
This is not helping at the moment, since the strong U.S. dollar hurts companies with international operations. Unfavorable currency fluctuations caused Hershey’s revenue to decline 1% in 2015. Fortunately, the currency situation is gradually improving.
The company is performing significantly better so far this year. Last quarter, net sales increased 2.4% excluding currency, to $2 billion.
Hershey expects sales to grow for the full year, for a number of reasons. Over the long-term, Hershey’s international expansion should benefit the company. Under-developed economies stand to grow at a higher rate than more mature markets like the U.S. and Europe.
This disparity was on full display last quarter. International sales increased 5.3%, while sales in North America increased just 1.8%.
Pricing Power and Acquisitions
In addition, Hershey’s strong brand allows the company to raise prices and take market share. For example, higher pricing generated 0.70% revenue growth last quarter, and market share rose 0.5%.
Lastly, Hershey is poised to grow through acquisitions. Acquisitions drove 0.70% revenue growth last quarter, due to the acquisition of barkTHINS in the second quarter. Hershey also acquired Brookside, to claim a greater share of premium chocolate.
In 2015, Hershey acquired beef jerky manufacturer Krave for $218 million to diversify outside chocolate into protein-based snacks.
Hershey management maintains a long-term goal of 5%-7% annual revenue growth. The company can get there, through a combination of easing foreign exchange impacts, and growth through price hikes and acquisitions.
Revenue growth will be a strong tailwind for earnings-per-share growth, as will cost cuts. Hershey has announced a significant cost-cutting program. It expects to deliver approximately $135 million in cost savings this year and at least $100 million each year from 2017-2019. Based on this, management expects profit margin to increase in 2017.
With revenue growth and margin expansion, it is not unreasonable to expect the company’s earnings per share to increase at a high-single digit to low-double digit rate moving forward. Last quarter, earnings per share adjusted for non-recurring costs increased 10.3%.
In addition to Hershey’s solid 2.5% dividend yield, investors could conceivably earn 10% to 12% annualized returns moving forward.
Hershey Dividend, Plus Growth
Hershey stock is performing well, and could continue to do so next year. The company is rapidly boosting its product lineup, through innovation and acquisitions. It is also growing across international regions like Latin America and China.
Hershey generates steady profits, and the company uses its cash flow to reward shareholders with cash returns. Hershey is in the process of executing a $500 million share repurchase program. There is $100 million left in the authorization. Continued share buybacks will help boost earnings growth.
The Hershey dividend record? Hershey is a rock-solid dividend payer. In fact, it has paid uninterrupted dividends for the past 87 years. The company also grows its dividend regularly. In 2016 the company upped its shareholder payout by 6%.
Investors with an appetite for dividends and growth all in one stock should consider Hershey.
— Bob Ciura[ad#wyatt-income]
Source: Wyatt Investment Research