3 Dividend Aristocrats Trading Below Their Historical Valuations
Income investors rarely sell stocks that keep raising payouts, which usually keeps them pricey. Three Dividend Aristocrats broke that pattern, and each carries a different reason for the markdown, from messy cleanups to soda worries to a finished turnaround.
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A 25-year dividend-raise streak usually keeps a stock expensive because income buyers rarely sell what keeps paying them more. Right now, three S&P 500 Dividend Aristocrats are trading at a discount to their own history, and that discount means a higher yield for anyone buying today. The clearest case is PepsiCo (NASDAQ: PEP | PEP Price Prediction), which trades at about 17 times trailing adjusted earnings. Its average at year-end over the past five years was roughly 23. Hormel Foods (NYSE: HRL) and Stanley Black & Decker (NYSE: SWK) complete the group. All three still fund their dividends with cash.
Hormel Foods: A 5% Yield at 16 Times Earnings
At a share price of $22.97, Hormel’s quarterly dividend of $0.2925 works out to a forward yield of 5.09%. Over the past 10 fiscal years, the stock’s yield at fiscal year-end averaged 2.64%, so today’s buyers lock in a much higher income stream than the stock has usually offered. The earnings multiple tells the same story. Hormel trades at about 16 times trailing adjusted EPS, against a five-year fiscal year-end average of 21. The share price is still 36.37% below where it stood five years ago.
The discount comes mostly from portfolio cleanup. Third-quarter revenue fell 2.4% to $2.96B. GAAP EPS of $0.11 included a $56M loss on the Brazil sale, a $48.2M impairment on a minority stake in Indonesia, and a $37.5M antitrust settlement. Those charges look temporary. Adjusted EPS of $0.37 beat the $0.35 consensus, and management raised full-year adjusted EPS guidance to $1.45-$1.51.
Dividend safety. The forward dividend takes about 79% of the midpoint of adjusted EPS guidance. Third-quarter operating cash flow of $240.6M, less $68.2M of capital spending, covered the $161M paid out in dividends about 1.07 times. Hormel holds $839.6M in cash. Coverage looks weaker on GAAP numbers: trailing GAAP EPS of 0.62 is below the annual payout. The quarterly rate has gone up every year in the payment records, from $0.145 in 2016 to $0.2925 today, and the latest check was the company’s 392nd consecutive quarterly payout. Hormel belongs to the Dividend Aristocrats Index. The interim CFO said plainly, “We remain committed to the dividend.”
Bull case. Foodservice posted its 12th consecutive quarter of organic growth, and its adjusted operating margin expanded to 9.0% from 8.4%. Cheaper pork should also help over time. Management put it this way: “The lower markets help our margin profile over time, and you will see that carry forward here based on our current forecast into the upcoming quarters and into ’27 as well.”
Risk. The grocery shopper is under pressure. Retail sales fell 4.3% in the quarter, and management said: “Our outlook assumes the consumer backdrop remains strained.”
PepsiCo: A 4% Yield and a Multiple Well Below Its Five-Year Norm
PepsiCo yields 4.09% on its $1.48 quarterly dividend at $144.70 a share. Its year-end yield averaged 3.00% over the past decade. With the stock at about 17 times trailing adjusted earnings, compared with a five-year average of 23, investors are paying far less than usual for each dollar of PepsiCo’s profit.
Most of the discount comes from North America. Management cut full-year core EPS growth guidance to +2.5% to 3.5% from +5% to 7%, citing higher input costs. Part of that is a normal cost cycle as hedges roll off. The weakness in soda is a more lasting concern. The CEO said, “We do not feel good about the beverage business.”
Dividend safety. The forward dividend uses about 70% of trailing adjusted EPS. Cash coverage is closer: PepsiCo’s free cash flow yield of 3.95% is roughly equal to its dividend yield measured on the same market value. Guided capital returns total $8.9B, including $7.9B of dividends. Net debt runs 2.60 times EBITDA, interest coverage is 10.26 times, and cash stands at $10.68B. The quarterly rate has risen every year in the payment records, from $0.13 in 1999 to $1.48 now, which easily passes the 25-year Aristocrat threshold.
Bull case. Third-quarter revenue rose 5.6% to $25.27B, and organic growth reached 3.1%. International organic revenue grew 8%, and North American snack volumes have turned positive. On snacks, the CEO said: “That business was low-single-digit negative volume growth. This year, we are low-single-digit positive volume growth. That is a major turnaround.”
Risk. Inflation in input costs could pressure margins next year. The CFO warned that hedges “have shielded us from some costs up until this point, where we are starting to see these hedges roll off and essentially our input costs start to ramp.”
Stanley Black & Decker: The Narrowest Discount With the Strongest Momentum
Stanley Black & Decker yields 2.80% on its $0.84 quarterly dividend at $119.96. That is still a bit above its 10-year average year-end yield of 2.67%. Its discount is the lowest of the three. At about 20 times the midpoint of adjusted EPS guidance, the stock costs more than the roughly 18 times it averaged at year-end over the past decade (that average leaves out 2023, when adjusted EPS fell to $1.45). The discount is visible in the yield and the share price, which is still 21.55% below its level five years ago even after an 87.81% gain over the past year.
The stock fell during a long restructuring that took adjusted EPS from $11.12 in 2021 down to the low point in 2023. The CEO now describes that period as finished: “We’re kind of at the end of the major transformational cycle that we were in.”
Dividend safety. At the current rate, the dividend costs about $507M a year. Full-year free cash flow guidance is $1.0 to $1.2B, and the third quarter alone produced $585M. The payout equals about 55% of the midpoint of adjusted EPS guidance. Management expects net debt of about two and a half times adjusted EBITDA at year-end and plans to keep an investment-grade rating. The quarterly rate has risen every year on record, from $0.215 in 1999 to $0.84, and the company is listed among the S&P 500 Dividend Aristocrats.
Bull case. Third-quarter adjusted EPS of $2.31 came in well ahead of the $1.56 consensus, and full-year guidance rose to $5.95-$6.25. The adjusted margin in Tools and Outdoor reached 17.6%, and organic Power Tools revenue grew 10%. The board also approved a new $1.0B buyback. After the report, Stanley Black & Decker was the day’s top S&P 500 stock.
Risk. Some of the earnings strength came from one-time items. Net tariff refunds added about $0.67 per share to third-quarter adjusted EPS, and the amount and timing of any future refunds are uncertain.
Three Aristocrats, Three Different Discounts
Hormel offers the biggest gap between today’s yield and its history, and most of the price drop looks like a one-time cleanup. PepsiCo combines a 4% yield with an earnings multiple well under its five-year average, as long as the North American turnaround keeps going. Stanley Black & Decker has the lowest discount but the best cash coverage, so its main appeal is dividend growth from a company that has just finished rebuilding.
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Lee Jackson has covered Wall Street analysts' equity and debt research and equity strategy daily for 24/7 Wall St. since 2012. His broad, diverse career, including a stint as creative services director at an NBC affiliate in Austin, Texas, gives him unique insight into the financial industry.
Lee Jackson's journey in the financial industry spans more than 30 years, including nearly two decades as an institutional equity salesperson at Bear Stearns, Lehman Brothers, and Morgan Stanley. His career spanned pivotal sell-side Wall Street events, from the dot-com rise and bubble to the Long-Term Capital Management debacle, 9/11, and the Great Recession of 2008. This reflects his resilience and adaptability amid market volatility.
Lee Jackson’s practical financial industry experience, gained through a career at some of the biggest banks and brokerage firms, is complemented by a lifetime of writing across various platforms. This unique combination allows him to shed light on the intricacies of Wall Street in a way only someone with deep insider experience and knowledge can. Moreover, his extensive network across Wall Street continues to provide direct access for him and 24/7 Wall St., a privilege few firms enjoy.
Since 2012, Jackson’s work for 24/7 Wall St. has been featured in Barron’s, Yahoo Finance, MarketWatch, Business Insider, TradingView, Real Money, The Street, Seeking Alpha, Benzinga, and other media outlets. He attended the prestigious Cranbrook Schools in Bloomfield Hills, Michigan, and has a degree in broadcasting from the Specs Howard School of Media Arts.
