Scott A. Mathews and Investment Underground Editors
Everyone needs toilet paper. Think about that for a minute and then contemplate these healthy dividend consumer goods companies that, true to the nature of their niche, offer a shield from market cyclicality. Not only do these companies offer goods that allow you to stock your home with basic goods from the pantry to the bathroom, they provide you, as an investor, with dividends greater than 3%, just like these 10 telcom dividend giants, these 7 pharma stocks for the golden years, and these 5 high-yield ETFs
Behind all the hype about trend lines, relative PE ratios and other market-speak, the basic truth of selling a product that people want and need is the most comforting thing about these picks. Add to this income security and we believe that these stocks warrant a good look:
Avon Products (AVP)—Before we get into this, we should note that we hate Andrea Jung as a manager. The company reported disappointing earnings again recently, coming in at 53 cents per share in the fourth quarter compared to last year's .63 cents. Revenue rose a mere 1.3% to $3.18 billion compared to an expected average of $3.27 Billion from analysts. Avon did warn of earning adjustments due to never-ending restructuring charges on February 1. Analysts expected unadjusted earnings of 66 cents compared to the 59 cents reported. But that being said, the company is fundamentally sound. 80% of sales are derived outside of the US meaning that it is sheltered from the low consumer confidence that has been persistent here. Add to this the security of nearly $3 billion of cash on hand while the company held down over $10 billion in sales last year. Shares trade at a discount to fair value, and we believe the company is an acquisition target. Yields 3.2%. We also believe the company is one of the dividend “kings” of 2011.
Kimberly-Clark Corp. (KMB) Unsexy. Decidedly this descriptor defines the bread and butter of KC’s business, which are primarily paper products. However, RBC Capital Markets has reiterated its outperform rating for this “unsexy” company and, along with Deutsche Bank, set a target price near $70. In addition to this vote of support, it may attract income investors with its 4.3% dividend. KMB has also been able to drive earnings growth and maintain margins in inflationary quarters dating back to 1986, which we wrote about here.
Campbell Soup (CPB)—“Mmmm mmm good” –This reassuring slogan delivered on the bottom line with EPS up over 9% in the past 5 years and projected to increase by nearly 6% over the next 5 years. In the face of higher input costs, Campbell’s brand strategy in the US and growth strategy abroad seems indicative of pro-active environment-adjusting management. Its soup along with its dividends could both keep you feeling good. Yields 3.5%.
Diageo Partners (DEO)— With brands including Johnnie Walker, José Cuervo, Guinness and Smirnoff, you’re sure to find a taste to suit you. It holds nearly $4 billion in cash, which facilitates a situation in which it needs to acquire its way to new market share. Looking out over the next 5 years, analysts are predicting a steady 10% growth in EPS. With massive brand appeal making the competition sweat and healthy dividends, this stock is a good choice for your home bar and perhaps your stock portfolio. Yields 3.2%
HJ Heinz Co. (HNZ)—A high dividend and attractive diversification should appeal to investors with a mild risk appetite and a need for income generation. It has trended off its high in recent months, so it might be worth watching for an inflection point. Commodity costs will create headwinds, but this is true across the consumers sector. Like some of its behemoth peers its brand recognition and economies of scale along with marketing savvy position it to withstand these headwinds better than some smaller, less organized groups. Yields 3.8%. We also believe Heinz is a great company for an inflation-proof portfolio.
Kellogg Company (K) UBS recently upgraded this perennial breakfast favorite to a buy with a target in the vicinity of $60. It’s a fierce competitive landscape, but with solid fundamentals and a steady demand it really falls to management to captain this ship to increased efficiency and profits. The dividend yield is nothing to sneeze at so, do you due diligence and make your assessments accordingly. Yields 3.1%
Kraft Foods (KFT) Facing the same challenge as most consumers, increasing input costs, Kraft has used its distribution and acquisition capabilities to maintain its competitiveness. With a market capitalization of $54 billion it is a behemoth. Now with Cadbury cementing its reign over the global confectionary market the question for investors to answer is perhaps whether or not their portfolio has a sweet tooth? Yields 3.8%
PepsiCo (PEP)—Coke’s global nemesis wins out in the battle of the dividends. If you subscribe to the belief that there will always be thirst, this beverage titan offers a good dividend to keep your incomes up while you wait for its global strategies to unfold. Because it can leverage massive economies of scale, PepsiCo can keep the competition at bay. Yields 3%
Unilever (UL) Renowned for the flexibility of adjusting to new markets, this global diversified consumer stock holds dominant positions throughout the world. Coupling a nearly 4% dividend with an EPS projection of over 25% this year, Unilever is a solid blue chip investment. Whether its in your shampoo bottle or spreading its detergent product through innovative and successful distribution channels in India, this is a global power staying power. Yields 3.8%