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Why These Dividend-Paying Consumer Stocks Look Attractive


Aug. 12 2019, Published 1:46 p.m. ET

  • Dividend-paying consumer stocks seem like a viable investment as the broader markets take a hit.
  • Income and stability make consumer staples stocks a good hedge against the looming threat of an economic downturn.
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Dividend-paying consumer stocks: A safe bet?

As the broader markets take a hit, dividend-paying consumer stocks seem like a safe bet. The basic principle behind choosing consumer stocks is the defensive nature of the sector. Consumer staples stocks are less vulnerable to economic downturns. Further, most of the companies in this sector look relatively stable and maintain steady dividend payouts.

Most sectors are looking less friendly at the moment as the US and China spar over the sticking points of a trade deal. High-growth tech stocks are no longer a clear investment choice—at least for now—as regulatory scrutiny mounts. Amid uncertainty, the consumer staples sector looks like a viable option.

The majority of consumer stocks have outperformed the broader markets so far this year. Moreover, they continue to boost shareholders’ returns through dividends and share repurchases.

PG, CL, and KMB: Stable dividend-paying stocks

Procter & Gamble (PG), Colgate-Palmolive (CL), and Kimberly-Clark (KMB) have a fantastic history of boosting shareholder returns through dividends. PG, CL, and KMB are dividend aristocrats, meaning they’ve raised their dividends consecutively for more than 25 years. To be precise, Procter & Gamble has increased its dividend for 63 consecutive years. Meanwhile, Colgate-Palmolive and Kimberly-Clark have consistently increased their dividends for the past 56 and 47 years, respectively.

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On April 19, Procter & Gamble increased its quarterly dividend by 4%. Besides increasing its dividend for the 63rd straight year, PG has paid dividends for 129 years. Procter & Gamble’s stable dividend is supported by the company’s balanced organic sales growth and strong earnings. PG’s focus on innovation and productivity savings are driving robust organic sales and earnings growth and, in turn, its cash flows.

Kimberly-Clark raised its quarterly dividend by 3%, marking its 47th straight year of a dividend hike. Higher selling prices and cost savings are enabling KMB to boost its shareholder returns. Meanwhile, Colgate-Palmolive has announced a dividend hike for the 56th consecutive year.

KMB, PG, and CL have current dividend yields of 3.0%, 2.5%, and 2.4%, respectively. Moreover, KMB, PG, and CL stock have outperformed the benchmark index and are up 21.4%, 27%, and 20.2%, respectively, year-to-date.

PM and MO: Low valuation and high yields

The declining global smoking rate, as reflected in lower shipments of traditional cigarettes, is taking a toll on the stock prices of tobacco companies. However, low valuations and high dividend yields make them an attractive bet. Philip Morris International (PM) and Altria (MO) currently offer high dividend yields of 5.5% and 6.9%, respectively.

Whether these companies will sustain such a high yield is a concern as they’re exposed to stricter government regulations. However, higher pricing and a focus on new reduced-risk products are likely to support their cash flows.

The shares of Altria and Philip Morris are trading at low forward PE multiples of 10.6x and 15.3x, respectively. Expected improvements in shipment volumes, low valuations, and high dividend yields make them attractive investment options.

Amid challenges, Walgreens boosts dividend

Shares of Walgreens Boots Alliance (WBA) have underperformed so far this year. Reimbursement pressure on earnings and a weak retail market in the UK are taking a toll on its stock. However, the company has continued to boost shareholder returns and recently announced a 4% dividend hike. Including the recent hike, Walgreens has now increased its dividend for the 44th consecutive year.

WBA is trading at a forward PE multiple of 8.9x, which seems low. Given the pressure on its earnings, the upside in its stock could be limited in the near term. However, the company will continue to maintain its dividend payout. Its EPS are also expected to return to growth in the second half of fiscal 2020. Further, a focus on cost-saving measures and store optimization is likely to support its earnings and, in turn, its cash flows. WBA stock has a current dividend yield of 3.5%.


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