The Hershey Company (HSY): A Sweet Deal Among Cheap High Dividend Stocks

The Hershey Company (HSY) is a well-known name in the confectionery industry, offering a range of popular products such as Reese's, Kit Kat, and Ice Breakers. With a strong dividend track record and a competitive valuation, HSY presents an attractive opportunity for investors seeking high dividend yields and steady growth. In this article, we will explore the reasons why HSY is an appealing choice among cheap high dividend stocks.



Dividend Growth and Yield

HSY has a long history of increasing its dividend, having raised it for 15 consecutive years. The company's dividend growth rate has averaged 8.9% over the past five years, demonstrating a strong commitment to returning value to shareholders. Currently, HSY offers a dividend yield of 3.47%, which is higher than the peer average of 2.5% and the S&P 500 average of 1.5%. This high yield indicates that HSY's stock offers a relatively high income compared to its peers and the broader market.

Valuation

HSY's valuation ratios suggest that the stock is undervalued compared to its peers and the broader market. The company's Price-to-Earnings (PE) ratio of 14.4x is lower than the peer average of 18.1x and the US Food industry average of 19.3x. Additionally, HSY's Enterprise Value/Revenue (EV/Revenue) ratio of 3.2x is lower than the peer median of 4.5x, and its Enterprise Value/EBITDA (EV/EBITDA) ratio of 10.4x is lower than the peer median of 12.5x. These valuation metrics indicate that HSY's stock price is relatively low compared to its earnings, revenue, and EBITDA, which could be a sign of undervaluation.



Risks and Challenges

While HSY offers an attractive dividend and valuation, investors should be aware of the potential risks and challenges facing the company. Some of these include:

1. Commodity Price Volatility: HSY is exposed to fluctuations in the prices of cocoa and other commodities used in its products. Rising cocoa prices could negatively impact the company's earnings and dividend sustainability.
2. Economic Downturns: Economic slowdowns or recessions can lead to decreased consumer spending on discretionary items like confectionery products, which could negatively impact HSY's sales and earnings.
3. Competition: Intense competition in the confectionery market from other players like Mondelez International (MDLZ) and Mars Wrigley Confectionery could lead to market share losses for HSY, affecting its revenue growth and profitability.
4. Leadership Changes: The announced departure of Michele Buck, Hershey's CEO, in June 2026 could lead to uncertainty and potential changes in the company's strategic direction, impacting its stock price and dividend policy.

Investors should carefully consider these risks and challenges when evaluating HSY as an investment opportunity.

Conclusion

The Hershey Company (HSY) is an attractive choice among cheap high dividend stocks, offering a strong dividend track record, competitive valuation, and a well-known brand. While the company faces potential risks and challenges, its dividend growth, high yield, and undervalued valuation make it an appealing option for investors seeking steady income and long-term growth. As with any investment, it is essential to conduct thorough research and consider your individual financial situation before making a decision.