In a slow growth economy (or no growth) some people may find comfort in dividend-paying companies that have strong brands and a predictable earnings stream. To a large degree, earnings predictability can be obtained from consumer goods companies selling items that are somewhat of a necessity. Non-cyclical consumer goods, companies that sell things such as food, cleaning products and personal hygiene products, typically see relatively consistent demand in their products in various types of economic cycles.
Included in this article are 5 consumer goods companies that have a few basic criteria in common (All data is taken from Yahoo Finance). Each company pays a minimum of 3.5% dividend yield, has a payout ratio of less than 70%, and has strong brand names in their product portfolio. The 70% payout ratio is a rather arbitrary point, but given the reasonably certain cash flows these companies produce, it does indicate some room for earnings to drop and the dividend to remain intact. Based on historical multiples (price-to-book, price-to-sales, etc) none of these companies are especially cheap, with perhaps the exception of Kellogg (K) (and to a lesser extent, Campbell Soup (CPB). Nonetheless, this list as at least a starting place for stable, cash generating companies, with big brands, that pay a reasonable dividend.
|Symbol||Price||Payout Ratio||Trailing PE||Dividend Yield||52-Week Higher||52-Week Low|
Procter & Gamble (PG) - Founded in 1837, the company is comprised of six segments: Beauty, Grooming, Health Care, Pet Care, Fabric Care and Home Care, Baby Care and Family Care. It boasts such brands as Pampers, Tide, Always, Bounty, Dawn, Charmin, and many others, and routinely ranks in the top of the related category. The company currently pays a dividend yield of almost 3.5% and trades near the top end of its 52-week range.
Clorox (CLX) - Founded in 1913, the company operates in four segments: Cleaning, Lifestyle, Household and International. The company owns brand names such as Clorox, Formula 409, Liquid-Plumr, Pine-Sol, S.O.S, and K C Masterpiece, among others. Clorox is currently around 3.5% and trading near its 52-week high.
Campbell Soup Company - Founded in 1869, the company offers condensed and ready-to-serve soups, broth and stocks, pasta and Mexican sauces, canned poultry, juices and beverages and tomato juices, and other food/drink products. It is currently yielding about 3.5% and trading near 52-week highs. It should be noted, from a business line standpoint, it is not as diversified as Procter & Gamble, as it is primarily into the food space.
Heinz Company (HNZ) - Founded in 1869, the company's main products include ketchup, condiments and sauces, frozen food, soups, beans and pasta meals, infant nutrition, and other food products. It is currently yielding about 3.75% and trading near its 52-week high. Similar to Campbells, Heinz is much narrower in scope, and is primarily focused on food.
Kellogg - Founded in 1906, Kellogg Company makes ready-to-eat cereal and convenience food products all over the world. It includes such brands as Cheez-It, Coco Pops, Corn Flakes, Eggo, Frosted Flakes, Kashi, Pringles (recently purchased from PG), and many other brands. It currently yields almost 3.69% and is trading near its 52-week lows. Similar to CPB and HNZ, Kellogg is clearly a pretty singularly focused company, with the focus being food.
All of the companies on this list have a history of generating strong returns on equity and returning cash to shareholders. They also share some of the same risk, in that they are all impacted by input cost inflation if inflation picks up (or just particular inflation related to the specific inputs). While these companies sell items that don't necessarily need significant economic growth to flourish, they still have to fight off competition of other branded products and generic (store brands, etc) brands. I believe these will be the best investments, relatively speaking, in a slow growth environment (some of this is likely already priced in and partly a reason why many of these trade near 52-week highs). If there is a significant economic contraction, it could cause consumers to trade down to the non-branded versions of the same product.
As mentioned previously, from a historical comparison, only Kellogg and Campbell Soup could claim to be somewhat cheap. The others don't appear (at first glance only) to be absurdly cheap, but most on this list are offering yields that are higher than their historical norm. At minimum, these are all worth being on someone's watch list, just for their brand names and return metrics alone.
Disclaimer: This article should not be taken as investment advice, and is for informational purposes only.
Disclosure: I am long (PG).