Why The Hershey Company (HSY) Remains a Top Dividend Play in a Volatile Market

In a market marked by inflationary pressures, shifting consumer preferences, and geopolitical uncertainties, The Hershey Company (HSY) stands out as a resilient dividend play. With a 2.93% yield that outpaces the Consumer Defensive sector average of 2.64%, Hershey offers investors a compelling combination of income and growth potential. This article examines why the company's dividend sustainability, pricing power, and long-term demand in the essentials-driven consumer staples sector make it a standout in today's volatile environment.

Dividend Sustainability: A Foundation of Cash Flow and Discipline

Hershey's dividend sustainability hinges on its robust cash flow generation and prudent capital allocation. Despite a payout ratio of 65.6%—above the sector average of 56.4%—the company has maintained a 16-year streak of consecutive dividend increases. This durability is underpinned by consistent operating cash flow, which totaled $5.413 billion over the 12 months ending March 2025. Even with a 30.3% year-over-year decline in Q1 2025 cash flow, long-term trends show a steady rise from $901 million in 2010 to $2.532 billion in 2024.

Free cash flow (FCF) has comfortably exceeded dividend payouts in recent years. From 2019 to 2024, Hershey generated $6.7 billion in FCF while distributing $4.7 billion in dividends. A reverse discounted cash flow analysis suggests the stock has a 23% upside potential even under conservative growth assumptions. While the company's debt-to-equity ratio of 124.9% remains elevated, its EBIT coverage of 13.6x and $1.5 billion in cash reserves provide a buffer against refinancing risks.

Pricing Power: Navigating Commodity Volatility

Hershey's ability to adjust pricing in response to rising input costs is a critical strength. Cocoa prices, a key cost driver, surged in 2025, squeezing gross margins. However, the company has mitigated this through strategic price pack architecture, formulation changes, and cost-saving initiatives. For example, its North America Confectionery segment achieved organic net sales growth in Q3 2024 despite declining retail takeaways, driven by price realization and inventory timing benefits.

The company's expansion into healthier snacks also enhances pricing flexibility. Brands like SkinnyPop and Pirate's Booty cater to the 60% of U.S. consumers prioritizing better-for-you options. Hershey's acquisition of Lesser Evil further strengthens its position in this growing segment. While gross margins dipped to 33.66% in Q1 2025—a 14-point decline from 2020—productivity initiatives and a shift toward premium products are expected to stabilize margins over time.

Long-Term Consumer Demand: The Essentials Play

The confectionery and snack food sectors are inherently resilient, as they cater to discretionary but recurring demand. Hershey's 35% share of the U.S. chocolate market and its dominance in salty snacks (via brands like Dot's Pretzels) position it to benefit from this stability. The company's 92% brand awareness rate underscores its entrenched position in households, where nostalgia and loyalty drive repeat purchases.

Moreover, Hershey is adapting to evolving consumer trends. The salty snack segment, which contributed $306 million in Q2 2025 net sales, is projected to double its revenue contribution over the next decade. Innovations like Buffalo-flavored pretzels and Reese's filled pretzels tap into the $400 million filled-pretzel market, while sustainability initiatives and supply chain diversification reduce exposure to cocoa price shocks.

Investment Case: Balancing Risks and Rewards

While Hershey faces headwinds—such as a 650-basis-point gross margin contraction in 2025 and a $2 billion debt offering with long-term interest rate risks—its fundamentals remain compelling. Analysts project 2025 earnings of $1.01 per share, a 20.5% decline year-over-year, but revenue is expected to rise 22.8% to $2.55 billion. The company's 14.4% trailing annualized dividend growth rate and 72.21% Dividend Sustainability Score suggest a strong capacity to maintain payouts.

For income-focused investors, HSY's yield of 2.93%—coupled with a projected 3.9% EPS growth in 2025—offers a balance of income and moderate growth. However, investors should monitor the impact of rising interest rates on its debt load and cocoa prices on margins.

Conclusion: A Dividend Play for the Long Haul

The Hershey Company's ability to sustain dividends through volatile markets stems from its cash flow resilience, strategic pricing adjustments, and alignment with enduring consumer demand. While short-term challenges exist, the company's strong brand, diversified product portfolio, and innovation in health-conscious snacks position it for long-term success. For investors seeking a stable income stream with growth potential, HSY remains a top-tier option in the essentials-driven consumer staples sector.

Investment Advice: Buy for income and growth, with a focus on long-term horizons. Maintain a watchful eye on debt management and commodity price trends.