Consumer stocks are known for their consistent dividend growth, providing investors with slow but steady income. Stable business performance and the defensive nature of the sector enable these companies to pay dividends consistently. Moreover, most of the consumer companies are dividend aristocrats, meaning they have raised their dividends for more than 25 years in a row.
Consumer stocks consistently raised dividends
In addition to boosting dividends, most of the consumer stocks have seen phenomenal growth so far this year. Notably, the majority of companies in the consumer space (barring a few stragglers) have outperformed the benchmark index so far this year and are likely to sustain momentum in the coming quarters.
We believe sustained momentum in the base business is likely to help these companies deliver uninterrupted dividends in the foreseeable future.
Procter & Gamble
When it comes to dividends, Procter & Gamble’s (PG) name tops the list in the consumer sector. Procter & Gamble is known for creating a significant amount of wealth for its shareholders. Moreover, Procter & Gamble continues to boost shareholders’ returns through dividends and share buybacks.
Procter & Gamble’s dividend has grown at a CAGR (compound annual growth rate) of 3% over the last five years. In April, Procter & Gamble increased its quarterly dividend by 4% to $0.7459. Notably, Procter & Gamble has consistently raised its dividends in the last 63 years. Furthermore, PG has paid dividends for the past 129 years.
For fiscal 2020, Procter & Gamble expects to pay over $7.5 billion in dividends. PG paid $7.5 billion and $7.3 billion in dividends in fiscal 2019 and 2018, respectively.
We believe Procter & Gamble’s strong financial position enables it to deliver higher dividends. PG stock is up about 36% year-to-date (or YTD) and offers a dividend yield of 2.4%.
In addition to Procter & Gamble, Kimberly-Clark (KMB) is also known for its steady dividend growth and has continually paid dividends since 1935. Moreover, Kimberly-Clark has hiked its dividends for 47 consecutive years. KMB paid $1.4 billion in dividends in 2018. Furthermore, it increased its 2019 dividend by about 3%.
We believe that favorable commodity cost trends, improving organic sales, and cost savings could enable KMB to pay uninterrupted dividends in the coming quarters. Kimberly-Clark stock is up 20.2% year-to-date and offers a dividend yield of about 3%.
Clorox (CLX) has disappointed with its financial performance so far this year. However, the company sustained its dividend payout. Clorox announced a 10% increase in its quarterly dividend to $1.06 per share. Including this year’s hike, Clorox has now raised its dividends for 42 consecutive years. Clorox announced a 14% hike in the quarterly dividend last year.
In fiscal 2019, Clorox paid $490 million in dividends. Moreover, it paid $450 million in dividends in fiscal 2018. We expect Clorox to sustain its dividend payout despite near-term sales and margin headwinds.
However, we remain skeptical about Clorox’s current valuation. Clorox stock trades at a forward PE multiple of 24.6x, which seems high given the projected decline in its EPS in fiscal 2020.
Clorox’s management expects trade promotional spending and higher manufacturing and logistics costs to suppress its earnings growth. However, innovation and cost savings could support its profitability.
Clorox stock is down about 1% YTD, reflecting weak financial performance. Meanwhile, Clorox stock offers a dividend yield of 2.8%.
Colgate-Palmolive (CL) has continually paid dividends since 1895. The company increased its annual dividend to $1.72 from $1.68 this year. Notably, the company has consistently increased its dividends for 56 years.
Colgate-Palmolive paid $1.591 billion in dividends 2018. Further, it paid $1.529 billion in dividends in 2017.
Colgate-Palmolive’s organic sales benefit from balanced growth in both volumes and pricing. We believe higher organic sales and cost-saving measures are likely to support Colgate-Palmolive’s profitability in the coming quarters and, in turn, its dividend growth. Colgate-Palmolive stock is up 15.5% so far this year. and its dividend yield stood at 2.5%.
McCormick (MKC) has a long history of paying dividends and has consistently paid dividends since 1925. Moreover, it has hiked its dividends in the last 34 years consecutively. Recently, McCormick announced a 9% hike in its quarterly dividend. McCormick raised its quarterly dividend from $0.57 to $0.62.
Its strong financial performance backs McCormick’s dividends. The company’s revenues and profitability have grown at a stellar pace over the past several years. Acquisitions, innovation, new product launches, and a shift toward high-margin business continue to boost McCormick’s profitability and its cash flow–generating capabilities.
Moreover, higher pricing and cost savings further support growth. McCormick has increased its full-year earnings guidance, implying strength in its base business. We believe McCormick’s strong financial performance could help the company continue to boost investors’ returns through dividends. Shares of McCormick are up about 20% YTD, and MKC stock offers a dividend yield of 1.5%.
Altria’s (MO) dividend yield remains lucrative despite near-term challenges. The tobacco giant currently offers a dividend yield of 6.6%. Altria’s high yield is due to the continued growth in its dividend and a higher payout.
This year, Altria increased its quarterly dividend by 5%. Furthermore, Altria has increased its dividend 54 times in the past 50 years. The company targets a dividend payout ratio of about 80%. Moreover, Altria paid $5.4 billion in the form of dividends to its shareholders in 2018.
We expect near-term challenges to limit the upside in Altria stock. However, higher pricing and expected moderation in shipment volume decline rates are likely to support Altria’s cash flow–generating capabilities.
In addition to its high dividend yield, Altria stock’s low valuation makes it an attractive investment. Altria’s forward PE multiple of 11.8x seems lucrative, given the projected mid-single-digit growth in its net income in 2020 and high yield. Altria stock is up 4.4% so far this year.
Philip Morris International (PM) is not a dividend aristocrat. However, the company has increased its dividends every year since it went public in 2008. Philip Morris paid $6.9 billion in the form of dividends to its shareholders in 2018. Moreover, it remains on track to return a similar amount in 2019.
In September, the tobacco giant raised its quarterly dividend to $1.17, representing year-over-year growth of 2.6%. Further, its dividends have grown at a CAGR of about 9% since 2008.
We expect Philip Morris to benefit from growth in reduced-risk products. Shipment volumes of heated tobacco units remain high. Moreover, higher pricing and the deceleration in the decline rate of cigarette shipment volumes could drive the company’s margins. Analysts expect Philip Morris to post high-single-digit growth in its net income in 2020.
Philip Morris stock is up 28.8% year-to-date. Moreover, PM stock offers a high dividend yield of 5.5%.
Coca-Cola (KO) is a dividend aristocrat and continues to boost shareholders’ returns through higher dividends. In February, Coca-Cola increased its quarterly dividend by 2.6% to $0.40 per share. The hike followed a 5% increase in 2018. Including the increase in 2019, Coca-Cola has raised its dividend for 57 consecutive years.
The company paid dividends of $6.644 billion, $6.32 billion, and $6.043 billion in 2018, 2017, and 2016, respectively. Moreover, Coca-Cola paid dividends of $3.419 billion in the first nine months of 2019.
We believe that higher net pricing, continued volume growth in emerging markets, and innovation is likely to drive its sales and profitability, as well as support dividend growth. Coca-Cola stock is up about 16% so far this year and has a dividend yield of 2.9%.
Target Corporation (TGT) has created a significant amount of wealth for its investors so far this year. In addition to stellar growth in its stock, Target boosted its shareholder value in the form of higher dividends and share repurchases.
Target Corporation has consistently paid dividends since it went public in October 1967. Moreover, it has raised its annual dividends for the last 48 years.
Earlier this year, Target announced a 3.1% increase in its quarterly dividend to $0.64. Target paid dividends of $1.335 billion and $1.338 billion in fiscal 2018 and 2017, respectively. Moreover, it paid dividends of $995 million in the first nine months of fiscal 2019.
Target is driving profitable growth, which we believe is likely to help the company boost its dividends in 2020 as well. Higher traffic and ticket size could continue to drive its comps and its profitability. Further, cost savings and a favorable mix could support Target Corporation’s earnings growth. Target stock has spiked 94.2% year-to-date and offers a dividend yield of 2.1%.
Walgreens Boots Alliance
Shares of Walgreens Boots Alliance (WBA) have taken a beating so far this year. Pressure on margins from higher reimbursements and challenges in the UK took a toll on its financial performance and limited its stock’s recovery.
Despite these challenges, Walgreens announced a 4% increase in its quarterly dividend. Including the hike in 2019, Walgreens has increased its dividend for 44 consecutive years. Notably, Walgreens has paid quarterly dividends since 1933.
Walgreens paid cash dividends of $1.6 billion in fiscal 2019. Moreover, it paid dividends of $1.7 billion in fiscal 2018. Walgreens stock is down 14.3% year-to-date and offers a dividend yield of 3.1%.