Chris Lange
6 min read
Quick Read
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Hormel’s GAAP payout ratio sits near 189% and free cash flow of ~$534 million fell short of the $633 million paid in dividends.
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Dine Brands already cut its dividend 63% to $0.19/quarter, yet first-half operating cash flow collapsed from $53 million to $20 million.
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Wendy’s has cut its quarterly dividend twice, from $0.25 to $0.07, as U.S. same-restaurant sales fell 7% and operating income dropped 24%.
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Two well-known income names reset their payouts in the past year. Campbell’s (NASDAQ:CPB) cut its quarterly dividend to $0.25 from $0.39. Dow (NYSE:DOW) halved its payout to $0.35 from $0.70. In both cases, the numbers showed strain before the board acted. A high yield is only as good as the company’s ability to sustain it, and the six consumer stocks below show the same strain.
How to spot a dividend at risk: check whether earnings and free cash flow (operating cash flow minus capital spending) cover the payout, whether debt is helping fund it, and whether the yield rose mainly because the stock fell. All six are ordinary corporations, so earnings per share (EPS) and free cash flow are the right coverage tests. (A free dividend trap guide lists seven of these warning signs if you want the full checklist.)
Hormel Foods (HRL): An Aristocrat Whose Coverage Looks Stretched
Hormel Foods (NYSE:HRL) yields about 5.7% on its $1.17 annualized dividend, and its Dividend Aristocrat status makes it a staple in retirement portfolios. Much of that yield comes from a falling stock. Shares are down 42.28% over five years, while the quarterly payout only edged up to $0.2925 from $0.29.
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Trailing GAAP EPS of $0.62 puts the payout ratio near 189%. Third-quarter GAAP EPS dropped to $0.11 from $0.33 after a divestiture loss, an impairment, and an antitrust settlement. Even using the midpoint of adjusted EPS guidance ($1.45 to $1.51), the payout takes about 79% of earnings. In fiscal 2025, free cash flow came to roughly $534 million, short of the $633.2 million paid in dividends. Net sales fell 2.4%.
