Best Bets In Consumer Staples

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 |  Includes: CHD, CL, CLX, ENR, KMB, PG
by: Pey Shadzi

Ever since I was little, I loved to be anywhere near clean laundry. Looking back, I suppose it could be considered odd for a six year old to ask his parents if it was permissible to do the laundry, but what can I say? I was addicted to that clean, fresh smell, and watching commercials of the Snuggle bear on television actually made it seem quite hip. You know, an "all the kids are doing it," type deal, right?

So it shouldn't be any surprise that today I have a happy girlfriend who prides herself in being able to pick a boyfriend who does his own laundry. It also shouldn't come as a surprise that I've subsequently bought shares of several consumer staple stocks. In fact, according to my Sharebuilder account, this sector makes up a strong 8.5% of my overall portfolio. We all need household and personal products, so let's be honest: it sounds like an economic moat if I've ever heard of one.

With that said, however, the household products is no stress-free walk in the park. This industry is price-competitive, mature and very slow-growing. Demand is, more or less, swayed by an increase in population and particular consumer preferences. The competition is fierce and new players in the game often struggle to compete. Moreover, if these companies wish to increase their earnings, much emphasis needs to be placed on reducing costs and being "lean and mean." Easier said than done.

There's a war of the consumer staple companies brewing, let's stack them up head-to-head and see how the numbers look:

Ticker Market Cap P/E Dividend % Payout Ratio % Beta YTD %
ENR 5.1 billion 17.8 N/A N/A 1.32 (1.46)
KMB 28.7 billion 18.3 4.05 70 0.33 (0.75)
PG 186.4 billion 19.8 3.12 60 0.45 0.75
CHD 6.9 billion 22.9 1.97 28 0.34 6.32
CLX 8.9 billion 16.8 3.54 56 0.39 1.92
CL 45.8 billion 19.3 2.43 46 0.43 3.23
Click to enlarge

Call me crazy if you'd like, but I'm leaning towards saying Church & Dwight (NYSE:CHD) is looking like the winner to me. Sure the dividend yield is modest, coming in at about half of what Kimberly Clark Corp (NYSE:KMB) offers, but the payout ratio is much lower and, unlike KMB, CHD's dividend has room to run. Tack on CHD's reasonable P/E valuation -- relatively speaking for a much smaller company with really great growth prospects -- and I'd choose Church & Dwight out of this lineup any day.

Don't get me wrong, the other players have potential, too. Energizer Holdings (NYSE:ENR) has solid revenue growth, an increase in net income, good cash flow and growth in EPS, but it's lacking in the dividend arena. And Colgate-Palmolive Co (NYSE:CL), after making it through one of the worst recessions we've seen, has been expanding its profit margins and outpacing the industry in terms of revenue growth all the while boasting a 2.43% dividend yield and a moderate payout ratio of 46%.

Oh, and we can't leave out Procter & Gamble (NYSE:PG), founded in 1837, which has raised its revenues 3.9% for the same quarter YOY and has managed to grow its cash flow at an impressive rate of 7.5% over the last year. Finally Clorox Co (NYSE:CLX), which exhibited a newsworthy growth in the company's revenue, also helped boost EPS despite seeing recent bouts of volatile earnings. Not too shabby.

All in all, I believe it's fairly difficult to scrutinize the companies listed above too critically as they've all been quite successful over the last twelve months and continue to thrive in this economic environment. If I had to go with one, like I mentioned before, I'd go with CHD for its future potential, but if I were a retiree looking for dividend income, my choice would likely differ with an emphasis on current yield.

If you think I'm way off base or believe there are even other picks not mentioned in this article, let me know in the comment section below. Let the war of the consumer staple companies begin! Now if you'll excuse me, I have a load of laundry that needs to go in the dryer. Snuggle bear, where are my dryer sheets?

Disclosure: I am long PG, KMB, CHD.