Most consumer stocks have outperformed the broader markets so far this year. An improved macroeconomic backdrop and the industry’s defensive nature make them a safe bet. Moreover, these companies continue to boost shareholder value through consistent dividend increases and share repurchases.
Furthermore, most of these companies are dividend aristocrats, which means they’ve consistently raised their dividends in the last 25 years. Let’s take a look at some of the most notable consumer stocks of late.
Procter & Gamble raised dividends for 63 years
Procter & Gamble has created a significant amount of wealth for its shareholders over the last several years. It’s been paying dividends for the last 129 years, and it’s increased its dividends for the past 63 years.
P&G’s dividends have increased at a CAGR (compound annual growth rate) of 3% over the last five years. This year, P&G raised its quarterly dividend by 4% to $0.7459. It paid a total dividend of $7.3 billion in fiscal 2018, and it paid $7.5 billion in dividends in fiscal 2019. The company plans to pay over $7.5 billion in dividends in fiscal 2020.
Procter & Gamble also buys back a large number of shares to boost investors’ returns. It repurchased $7.0 billion worth of shares in fiscal 2018 and $5.0 billion worth of shares in fiscal 2019. As for fiscal 2020, it plans to repurchase $6 billion–$8 billion worth of shares.
We believe Procter & Gamble will continue to boost dividends thanks to its stellar financial performance. The strength in the company’s underlying sales and productivity savings are likely to drive its earnings and, in turn, its cash-flow-generating capabilities.
Procter & Gamble expects organic sales growth of about 3%–5% in fiscal 2020. Meanwhile, its bottom line growth forecast is 5%–10%.
Besides Procter & Gamble, Kimberly-Clark (KMB) and Colgate-Palmolive (CL) also have histories of consistently increasing their dividends. Kimberly-Clark has increased its dividends for the last 47 years. Colgate-Palmolive has raised its dividends for the last 56 years.
Procter & Gamble stock is up about 35% so far this year and offers a dividend yield of 2.4%. Kimberly-Clark and Colgate-Palmolive offer dividend yields of 3.0% and 2.5%, respectively.
Tobacco giants: Consumer stocks with high yields
Altria (MO) is going through a rough patch. The continued decline in cigarette shipment volumes is taking a toll on its stock. Further, regulatory changes in the e-vapor category are adding to investors’ discontent.
Altria has cut its forecast for US e-vapor volumes. It’s also taken an impairment charge of $4.5 billion on its Juul investment.
Despite Altria’s short-term challenges, we think its dividend yield is lucrative. Altria’s current dividend yield stands at 6.7%. It’s targeting a dividend payout ratio of about 80%, which is high. Moreover, it’s increased its dividends 54 times in the last 50 years.
In August, Altria hiked its quarterly dividend by 5% to $0.84, taking its annual dividend to $3.36.
In comparison, Philip Morris International (PM) currently offers a dividend yield of 5.6%. Its stock has appreciated nearly 25% so far this year. In September, Philip Morris hiked its quarterly dividend by 2.6% to $1.17.
Notably, Philip Morris has raised its dividends every year since it went public in 2008. Moreover, its dividend has grown at a CAGR of 8.9%.
Philip Morris paid $6.9 billion in dividends in 2018. Meanwhile, Altria paid $5.4 billion to its shareholders in the form of dividends in 2018.
We expect the decline in cigarette shipment volumes to moderate in 2020, which is likely to support the revenue and earnings of these companies. Price increases could drive their margins and, in turn, their EPS.
Stable financial performances will likely help these tobacco giants continue to raise dividends in the foreseeable future.
McCormick consistently paid dividends
McCormick (MKC) is among the consumer-sector companies that have consistently paid dividends. For instance, McCormick has been paying dividends since 1925. Moreover, it has increased its dividends for 34 straight years. In November, McCormick increased its quarterly dividend to $0.62 from $0.57, reflecting growth of about 9%.
McCormick’s revenue has steadily increased thanks to innovations, product launches, and brand marketing. A favorable product mix, price restructuring, and cost savings have supported its bottom line growth and, in turn, its cash flows. It’s also exited the lower-margin business, boosting its profitability.
McCormick has raised its earnings growth outlook for fiscal 2020, implying strength in its base business. McCormick now expects its adjusted EPS to be $5.30–$5.35, up from $5.20–$5.30.
We believe McCormick’s stable financial performance will help it continue to boost investors’ returns through dividend hikes.
McCormick stock rose 36.6% in 2018, and it’s up 23.5% so far in 2019.