The Hershey Company (NYSE:HSY)

CAPS Rating: 3 out of 5

A snack food company and manufacturer of quality chocolate and non-chocolate confectionery products. Its principal product groups include confectionery and snack products; gum and mint refreshment products; and food and beverage enhancers.


Player Avatar truthisntstupid (93.74) Submitted: 8/26/2010 12:20:19 AM : Outperform Start Price: $42.16 HSY Score: +54.60

Just how threatened by store brands and substitutes do you think Hershey is? Their product is always the last thing you see just before you check out at many places. It just isn't worth taking a lower-quality substitute when you're probably eyeing a candy bar that costs less than a dollar, anyway. Their products are ubiquitous. You see them everywhere. I think we have a moat here.Now let's look at why I think it's a good pick and won't tank my CAPS score.The same reason it would be a good investment in real life, of course. Because I don't 'play to win' at CAPS. I make picks based on whether I believe they would be good choices if I were looking at going in with real I think everyone should. Because if you don't, your rating and score means nothing to me.They have a good bit of debt, but it isn't a problem, since interest coverage is 12.5.Return on equity is 69.2% as listed in CAPS land...while Yahoo!finance lists a return on equity figure of 86.6%. Either one is fine with me. How about earnings? Their current PE is 22.6Yahoo!Finance lists their forward PE at 16.94.5-year high PE listed here at Fool is 61.5-year low PE listed here at Fool is 15.9.Trailing 12 months EPS as listed at Yahoo! is $2.10.Consensus estimates for EPS 12/2010 are $2.53.So they're up just a little from their 5-year low PE valuation but earnings are expected to pick up about 20% over earnings shown for the trailing twelve months. Good.They've raised their dividend for decades. Until 2009. The last dividend payment in Dec 2009 marked the 10th consecutive quarter that they paid the same dividend. It cost them their dividend aristocrat status. In March of this year (2010) They resumed dividend increases, raising the dividend 7.56% from the $1.19/year they had paid for the last two years to the $1.28/year which is where it stands now.They lost their aristocrat status but they never cut the dividend. In my opinion, they are not only not going to, but will resume regular dividend increases again.Dividend yield is currently 2.7%.So how well is this dividend covered?The dividend payout ratio is 59%. Hey, just a few months ago the last time I looked at it, it was 63%. Earnings ARE picking up.Jordan DiPietro ("How Safe Are Kraft Foods' Dividends?") has a table comparing Kraft's cash flow coverage ratio to other companies in the article I have in parenthesis. Hershey's cash flow coverage ratio is 2.71. Take your calculator and hit the 1/X button, and what you find is that hershey's dividend only requires 37% of it's free cash flow. It has a beta of .32. It won't rise as fast as the indexes but it won't fall as fast either. Slow and steady and a dividend that is most likely very safe and should continue to grow. Have a candy bar.

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Member Avatar truthisntstupid (93.74) Submitted: 1/6/2011 7:31:49 PM
Recs: 1

This has seemed like a pretty bad pick almost from the time I made it....but I keep remembering one of the other players' pitches before which he mentioned that there had never been a ten-year period during which Hershey failed to outperform. So...since the long-term is my thesis, I'm stickin' with it. Besides, just wait till the next time the market falls. Watch and see.

Member Avatar truthisntstupid (93.74) Submitted: 6/4/2011 6:04:16 PM
Recs: 0

Today is June 4, 2011. Saturday.
Been awhile since I looked. The quarterly dividend has risen from $0.32 to $0.345 - a 7.81% boost. Nothing spectacular yet, but time and dividends will make it so.
My start price is listed as $45.51 on 8/26/2010.
My real original start price was $46.42.
Dividends did that. And the next time it goes ex-dividend in August, the next payout will cause my start price to drop down to around $45.23. I'm pretty sure I'll nail it within a few cents. The dividend itself has a bigger effect than the ex-dividend day opening price.
This dividend may not be a high yield, but it grows, is very secure, and is solidly paid from earnings and free cash flow.
Last August 26 I made this a CAPS pick at an original start price of $46.42, and at the time it paid quarterly dividend of $0.32, a yield of 2.76%.
Now the quarterly dividend is $0.345, which represents a yield on cost for me of 2.97%.
Each dividend payout reduces my dividend-adjusted CAPS start price. And as the dividend grows, each payout will take a bigger and bigger bite off my start price.
Those incremental decreases in your dividend-adjusted price reflect real money returns for dividend investors.
It's a keeper, CAPS-wise. My start price will remain firmly on a downward trajectory for a long, long, time.
In real life, I need a bigger dividend yield.
See my comments in the pitch reply sections of my pitches for SCG or VZ.

Member Avatar truthisntstupid (93.74) Submitted: 6/4/2011 6:22:30 PM
Recs: 0

Or my comments in the pitch reply sections of my pitches for MO...or PEP...
Dividends. The little guy's secret weapon. Fool on.

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