Tyson Foods (NYSE: TSN) share prices have been cut in half from their highs in early 2022. There are good reasons for the price decline, many of which are out of the company’s control. As we approach 2024, Tyson’s situation is starting to improve, and the dividend has just increased.
Is now a good time to buy this food processor and producer?
Before getting into the ugly numbers, it is important to highlight that most of Tyson’s business involves selling commodity products. Beef, pork, and chicken prices all change based on supply and demand, things that are mostly out of Tyson’s control. Many of its input costs, such as animal feed, are also commodities. So it isn’t exactly shocking that the business goes through difficult periods. With that caveat, 2023 was a terrible year.
Tyson’s sales for the full fiscal year (which ended Sept. 30) were down 0.8%, with the fourth-quarter figure off by a higher 2.8% year over year. That’s not a great comparison. At the same time, costs skyrocketed, increasing nearly 8% year over year. Gross profit fell from roughly $6.7 billion in fiscal 2022 to just $2.6 billion in fiscal 2023. GAAP earnings per share fell from $8.92 per share last fiscal year to a loss of $1.87 per diluted share. The company pulled out a number of one-time items to bring fiscal 2023 adjusted earnings up to $1.34 per share, but that was still a decline of 85%.
There’s no way to sugarcoat it, fiscal 2023 was a bad year. But there were some silver glimmers on the dark clouds (it’s probably too soon to say they are silver linings). For example, CEO Donnie King noted in the earnings press release that work to control what was actually controllable has helped make “…us more operationally efficient and aided a second quarter of sequential improvement in adjusted operating income.” That’s probably not going to assuage shareholder concerns, but it is important to note that some trends are, perhaps, starting to improve a little.
Here’s the more interesting change that was made in the quarter: The quarterly dividend was increased. A quick excerpt from the earnings release offers some outlook on the company going forward:
Effective November 10, 2023, the Board of Directors increased the quarterly dividend previously declared on August 10, 2023, to $0.49 per share on our Class A common stock and $0.441 per share on our Class B common stock. The increased quarterly dividend is payable on December 15, 2023, to shareholders of record at the close of business on December 1, 2023. The Board also declared on November 10, 2023 a quarterly dividend of $0.49 per share on our Class A common stock and $0.441 per share on our Class B common stock, payable on March 15, 2024, to shareholders of record at the close of business on March 1, 2024. We anticipate the remaining quarterly dividends in fiscal 2024 will be $0.49 and $0.441 per share of our Class A and Class B common stock, respectively.
The all-in figure is that the dividend in 2024 will likely be 2% higher than it was in 2023. That’s a modest increase, but there’s more you need to take in here. First, the board went back and increased a previously declared dividend. This is uncommon, and suggests that things are trending better than had been expected for the food maker. Second, the statement suggests that the new dividend level is expected to be sustainable throughout fiscal 2024. So presumably the worst of the industry’s weak spot is in the past. The company’s annual dividend increase streak is currently at 12 years.
There’s one more thing you need to take away from the dividend announcement. There are A and B shares. One class is essentially owned by the Tyson family, and the other is for everyone else. The dividends collected from Tyson stock are likely a very important component of the family’s income. There’s a clear risk that Tyson might consider paying a dividend that it can’t afford. However, given the dividend history here, it seems more likely that the family is interested in ensuring that the dividend is sustainable over the long term. (Driving the company into bankruptcy via unsupportable dividend payments wouldn’t be a great life decision.) Notice in the chart above that the dividend has largely trended higher over time, or at least remained static.
Tyson expects sales to be flat in fiscal 2024, which isn’t great news but better than a decline. Its financial performance will depend a great deal on commodity prices and cost containment efforts. Simply put, the difficult times aren’t over, even though they may be easing. So risk-averse investors probably won’t want to buy this stock.
But if the nadir has been reached, as the dividend increase hints could be the case, turnaround investors might want to look more closely at this 4.2%-yielding stock. Indeed, that yield is still historically high, suggesting this food stock remains on the sale rack. But that likely won’t last if financial performance starts to trend higher again.
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