The market has been beating down consumer staple stocks lately, which shouldn’t exactly be a surprise to my fellow dividend growth investors. Lanny detailed this trend last month in his infamous “Battle of the Consumer Staple Stocks,“ ultimately showing how some of the best consumer staple stocks are trading at a nice discount. The trend has still continued to this day, which is great because I love consumer staple stocks. This was probably evidenced by the fact that I purchased P&G twice in April! I’m back on the lookout for another purchase as I have some capital to deploy. With the introduction I have written, it shouldn’t be a surprise, but my watch list is going to be heavily focused in consumer staples sector. Let’s check out the four companies on my May Dividend Stock Watch List.
Dividend Stock #1: General Mills, Inc. (GIS) – GIS is a consumer staple stock that I do not own and I can’t figure out why I haven’t initiated a position in the company yet. The company’s brand portfolio is impressive, owning food brands such as Cheerios, Annie’s, Green Giant, Yoplait, Nature Valley, Pillsbury, Betty Crocker…you get the drift! Those are some of the top brand names in each of their respective food categories. How could you not love it?
From a metrics standpoint, GIS passes our Dividend Stock Screener with flying colors. Their forward P/E ratio is well below the broader market (~14.25X), payout ratio is less than our 60% threshold (50%), the company has a nice streak of increasing their dividend (14 consecutive years), and their 5-year average dividend growth rate is solid (8.34%). The company’s stock price has fallen significantly during the year and GIS is now yielding well over 4%. I have been looking at these metrics a lot recently and I cannot figure out why I haven’t made the plunge yet.
Dividend Stock #2: Kimberly-Clark Corporation (KMB) – KMB has a very strong brand portfolio as well, sporting brands such as Huggies, Pull-ups, Kleenex, Cottonelle, Scott, Viva, Kotex, and Depends. KMB’s current yield is slightly below 4% and the stock has fallen nearly 15% YTD (as of the time of the article). KMB’s forward payout ratio is also lower than the broader market (~14.6X). In January, KMB announced a dividend increase of 3% that continued their dividend increase streak. They are a Dividend Aristocrat after all. Like, GIS, I do not own KMB, but man would it be nice to add it to my portfolio.
Dividend Stock #3: PepsiCo (PEP) – I am very excited to add PEP to my watch list after their recent slide. What’s funny is that I made a list of 5 “Always Buy” stocks back in 2015 and you guessed it, PEP was one of the company’s on my listing. But since the article was published over two and a half years ago, PEP had typically maintained a high P/E ratio and was unfortunately not on my radar.
But that has changed recently. At the time this article was written, PEP’s stock price was $101.15/share, trading at a forward P/E ratio of 17.71X. The company’s forward payout ratio was calculated at ~56%, which is just below our threshold. In terms of dividend increases, PEP announced a VERY strong 15% dividend increase earlier in the year, along with a massive share buyback program. Finally, PEP passes all metrics of our stock screener and is a serious contender on my watch list.
The Clorox Company (CLX) – Last, but definitely not least, Clorox. CLX has consistently traded at a premium for as long as I have followed them. Their brand portfolio is strong, as they own brands such as Clorox (obviously), Burt’s Bees, 409, Kingsford, KC Masterpiece, Glad, Fresh Step, Hidden Valley, and Tilex. In my eyes, that’s a very, very strong brand portfolio! Despite trading a premium over the years, the company has not been immune to the pullback in consumer staple stocks.
While CLX has the highest forward P/E ratio at the time I am writing this article (~18.80X), the metric is below the broader market and passes our screener. Their forward payout ratio is 62%, which exceeds our 60% threshold barely, but not by an amount that would cause me to lose sleep and pass on a potential investment opportunity. Like many of the others on this list, they are a Dividend Aristocrat and announced a very strong 14% dividend increase earlier in the year. CLX isn’t a screaming buy for me yet and I may opt for a different investment on this watch list if the prices remain about the same. However, if their price continues to fall, I will jump all over the investment opportunity!
There they are. The four consumer staple companies on my May Dividend Stock Watch List. What are your thoughts about my watch list? Which of the four would you invest in at the moment? What stocks are on your overall watch list? Are you watching predominately consumer staple stocks right now like me? Or are you considering stocks in other sectors as well? I’m looking forward to your responses!