Tyson Foods' (TSN -0.19%) stock is deeply unloved today, with the price down by about 45% since hitting a high water mark in 2022. There are some pretty solid reasons for the drop, but the decline has also pushed the dividend yield to a historically high 3.6%. If you like to buy well-run companies when they look attractively priced, this longtime dividend grower could be worth a closer look today.
The dividend facts on Tyson Foods
First things first, Tyson Foods has not increased its dividend every year. In fact, there have been sometimes long stretches where the dividend stagnated. But, since 1977, the dividend has been paid every single year. And for the last 11 years, it has been increased annually. The average annual hike over the past decade was an attractive 26%. But the real story is that the dividend has for a very long time either been held steady or increased.
TSN Dividend Yield data by YCharts
More recent dividend hikes have been notably smaller than the 10-year average. The large longer-term increase is really a statement of the company's long-term business growth. But what's notable right now is management's ongoing commitment to the dividend even though it operates in a commodity business prone to volatile ups and downs. And despite being in a "down" period right now, management stated clearly that it remains committed to the dividend during its fiscal second quarter 2023 earnings conference call.
Investors should strongly consider putting a lot of reliance on management's support of the dividend because the Tyson Limited Partnership (basically the Tyson family) owns 99.99% of the class B shares. A dividend cut would mean materially less income for the Tyson family and that would likely not go over very well.
The problem today
So the dividend yield today is historically high and the dividend is likely to remain at the current level or be increased, given the historical dividend trends. Why are investors so downbeat on the stock? Inflation has created a massive headwind, with CEO Donnie King noting during the earnings call that he can't remember a time "where all three of our core protein categories, beef, pork, and chicken are experiencing market challenges at the same time." Basically, there's a lot of bad news today, leading investors to run for the hills.
That investor exodus is not exactly a shocking outcome, but given the long-term history here it might be short-sighted. Commodity prices go up and down, as does inflation. When the current headwinds finally abate, Tyson Foods' performance should recover. The headwinds don't appear to be a structural shift in the meat business, just an odd confluence of normal events -- all of which just happen to be negative in nature. The list includes things like rising feed prices, rising employee costs, and consumers pulling back on meat purchases because of rising price points. Yes, the company is hurting today, with second-quarter 2023 adjusted earnings falling to a loss of $0.04 per share from a $2.29 gain a year earlier.
And yet sales were up year over year and, subsequent to the end of the quarter, the company acquired a branded sausage maker. In other words, the company is still growing despite the issues it is dealing with. Maybe it just muddles through for a bit, but it also doesn't seem likely that Tyson Foods is going to throw in the towel on the dividend.
A long-term holding
Tyson Foods isn't likely to be an easy stock to buy right now, given the business headwinds and the commodity nature of the business. But, for those with a long time horizon, the dividend growth story here is pretty compelling given the historically high yield on offer right now. If you haven't done a deep dive on this food maker yet, you should probably do so quickly. Once the business starts to turn around Wall Street is likely to place a much higher valuation on the stock.
