1 A growth stock with a declining dividend yield of 35% is worth buying now.

Wall Street loves a good story, whether it's positive or negative. Unfortunately, nowHormel Foodsfirms(NYSE: HRL)The story is bad. That's why the company's stock is down about 35% from its 2022 high.

Although there are very real headwinds facing this food producer, it is very likely to weather the storm and continue to reward investors with strong dividend growth in the future. Here's what you need to know and why you should buy this stock today.

Hormel Dividend Growth Slows

Over the past decade, Hormel's dividend has grown at an annualized rate of about 12%, a relatively impressive figure for a consumer staples company known for slow but reliable growth. But its recent dividend growth has been less than stellar.

In 2022, the dividend is increased by 6.1%, in 2023, the dividend is increased by 5.7%, and in 2024, assuming no further increases in the dividend in the last year (one increase is normal), the dividend increase is only 2.7%.

As a result, dividend growth is slowing. That doesn't bode well, even though Hormel's board is apparently still focused on extending its 57th consecutive year of annual dividend growth. This, by the way, makes this food company the "Dividend King".

It's no accident that such a record was set, and to increase the dividend for 57 consecutive years requires that we go through some tough times. Unfortunately, these are tough times for Hormel. That's why dividend growth has slowed, and why the stock has fallen since peaking in 2022.

However, if you are a long-term dividend growth investor, this could be a buying opportunity. It's worth noting that the dividend yield of 3.2% is close to its highest in the last three decades. However, don't buy this stock without understanding the negative side of the equation.

Hormel has a lot of problems.

One of the biggest problems Hormel faced was the soaring inflation after the pandemic. As the company's costs increased, it tried to raise prices. This is exactly what all consumer goods companies do when the cost of flour rises.

Hormel's price hike was not as well received as many of its peers, and as a result, the company's financial performance suffered. Notably, earnings per share in 2023 fell to $1.45 from $1.82 in 2022. The decline is comparatively significant. It is also worth noting that the company's gross margins declined by almost 100 basis points in 2023 after improving in FY2022, indicating that Hormel is in a difficult situation.

This is not entirely related to the resistance to the company's price increases. Another problem is the avian flu, which has hurt the supply of turkeys for Hormel's turkey business. Without enough turkeys, it is impossible to sell turkeys or turkey-based products.

In addition, the company made a $3.3 billion acquisition of Planters Nut Company, which came at a time of weakness in the snack food segment. With the benefit of hindsight, it's not particularly encouraging that Hormel made its largest acquisition ever at a bad time. What's more, Hormel knew when it bought Planters that it would need to invest heavily to turn the brand around.

Finally, the company's business in China remains sluggish. China is an important growth platform for Hormel, but it's not growing as fast as management had hoped. The company has no choice but to wait for consumers to start buying its brands again.

Hormel still has a glimmer of hope despite the dark clouds.

On their own, these are not major problems, and given enough time, all of them can be resolved on their own. Consumers, for example, may be unhappy about price increases, but in the end they have no choice but to accept them. It is worth noting that sales volume increased in all business units during the first quarter, as management continued to focus on innovation to help justify the price increases.

Although Planters had a slow start, it actually outperformed the wider nut sector as the company introduced new flavors and upgraded its marketing. Avian flu is an ongoing problem, not unique to Hormel, and history suggests it will eventually get better. ....... Meanwhile, despite the problem, Hormel's turkey sales were up in the first quarter, which suggests it's still executing fairly well in the turkey space.

Meanwhile, while consumer growth in China is slow, there is some promise in the food service sector. This suggests that Hormel's future in China may be getting brighter.

The problem is that all these problems are coming at the same time. This gives some investors reason to worry. Since other food producers have been doing better, it makes sense for Wall Street to abandon Hormel and invest in other producers that are currently doing better.

However, given the stock's downtrend and the early signs of business improvement, now may be a good time to buy rather than sell. In addition, during the pandemic, Hormel was forced to put on hold important business modernization and streamlining efforts as it focused on dealing with a hampered supply chain. The company is in the process of reactivating these efforts, which will further help improve margins and financial performance.

Think long term Hormel

In the long run, none of these issues are likely to affect the company's growth. Dividend growth has slowed, but that's what you'd expect from the current situation. History suggests that Hormel will weather the storm and eventually get back on track. At that point, investors will probably return to the company at a higher price, and dividend growth will increase again.

If you're thinking in terms of decades, then buying now while Wall Street is so depressed gives you a chance to pick up a stock that could be labeled a fallen angel while it has historically high yields.

In response, Hormel reported solid earnings for the first quarter of fiscal 2024, and shares of the company jumped sharply even as the headwinds lingered. If things continue to improve for the iconic food maker, this could be just a hint of what's to come for the stock.

Should you invest $1,000 in Hormel Foods now?

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Reuben Gregg Brewer owns shares of Hormel Foods.The Motley Fool does not own any of these shares.The Motley Fool has a disclosure policy.

1 Dividend-Growth-Only Stock Down 35%, Buy Now was originally published by The Motley Fool