The market is actually down now, year-to-date. Luckily, it’s not just one company here or there, that is bringing the whole ship south. Instead, there are a vast number of companies that are seeing their price movements turn downward, unlocking value in the market place. As dividend investors, this is news that we all love to see. When there are macro-events in the economy, such as tariffs, trade wars, interest rate movements and technology enhancements – this usually leads me to go into one direction, when evaluating what dividend stock to buy. The industry that has shown signs of value, for the price, is the consumer industry! I want to do a comparison of a few stocks within that industry.
The Consumer Dividend Stocks
Since the stock market has dropped over 3% year-to-date and I had a consumer stock in my March Dividend Stock Watch List, I thought now is a good time to really hone in on the dividend aristocrats in that industry and see where they stand during this downturn. I will keep this to three stocks that most families use on a daily basis. I want to focus on three companies, whose name we see every where, at one place or another in the house – bathroom, closet, cupboard, you name it. Now, since we are dividend investors, I want to make sure (for this analysis) that they are a aividend aristocrat (i.e. increasing their dividend for 25+ years). Three companies that I will evaluate together are Kimberly-Clark (KMB), Johnson & Johnson (JNJ) and Procter & Gamble (PG). Below their logos are brief descriptions on the brands that they have, that we all have owned or currently own in our house.
1.) Kimberly-Clark (KMB) Brands Include: Huggies, Pull-ups, Kleenex, Cottonelle, Scott, Viva, Kotex, KMB Professional
2.) Johnson & Johnson (JNJ) Brands Include: Johnson’s Baby, Aveeno, Neutrogena, Rogaine, Band-Aid, Neosporin, Motrin, Tylenol, Benedryl, Listerine
3.) Procter & Gamble (PG) Brands Include: Always, Ariel, Bounty, Charmin, Crest, Dawn, Downy, Febreze, Gain, Gillette, Head & Shoulders, Olay, Oral-B, Pampers, Tide, Tampax, Scope, Puffs, Ivory, Old Spice
The consumer dividend stocks industry holds some of the most powerful and iconic brands known to most families. I don’t think with the recent events in our economy that their products will cease to exist any time soon. Given the number of events occurring, I always think that owning a few of these consumer dividend stocks is a great way to go, which is evident by our Top 5 Foundation Stocks article, which houses two of the three names listed above.
Consumer dividend stock analysis
Now, to evaluate the consumer dividend stocks listed above, I want to place them through our Dividend Diplomats’ Stock Screener and focus on these attributes: Price to Earnings (P/E) based on analyst expectations of earnings, Payout Ratio, 5-year dividend growth rate and # of years of dividend increases. The stock price I will be using in this article will be based on the March 23rd stock market close. Time to see which consumer dividend stock is the most ripe!
1.) Price to Earnings (P/E) Ratio: Wow. We all know we love the P/E ratio below 18, if we can. Looks like PG is on the border, with JNJ & KMB definitely below it, based on forward earnings. KMB wins this one, at below 15.
2.) Dividend YIeld: All are very solid here. However, my portfolio currently yields over 3% and I would like to maintain that if I can. Therefore, PG & KMB are the better of the 3. However, KMB, similar to the P/E ratio, wins this one, as they edge out PG by 19 basis points! It may not seem like a lot, but that’s a huge difference.
3.) Payout Ratio: Another very critical metric. We love to see below 60%. PG has been trying to right their “ship” for the last few years and I do believe that their payout ratio will get better. However, KMB & JNJ win this one, and JNJ has the lowest payout ratio amongst the three.
4.) Dividend Growth Rate (DGR): The power of the DGR is real I tell you! If you are yielding lower, you should have a higher growth rate. Therefore, JNJ falls in line with those expectations, as they have the lowest yield, but the highest 5-year average growth rate. In fact, I would have expected KMB’s to be the lowest, but they are actually higher than PG’s. I will mention that KMB increased their dividend earlier this year and it was only 3%, with PG increasing 3% in 2017 and JNJ increasing 5% in 2017. Therefore, this is a mixed bag. However, JNJ does win this round, though it’s not as clear.
5.) Dividend Increase History: Well, all 3 are dividend aristocrats, but for how long? This is very funny, and the range is 45-60 years consecutively and all are winners in this scenario. You cannot go wrong.
Consumer Dividend Stocks Conclusion
Very interest, indeed. I currently own PG and JNJ and do not own KMB. However, KMB is the one sporting the best characteristics, I would say, overall. They have a better yield than PG, with a better 5-year dividend growth, showing more room to grow as well. The downside here is that their brand portfolio, in my opinion, isn’t nearly as large as PGs or JNJs. JNJ’s stock price and yield is not exactly where I’d like it to be, yet. If JNJ had over a 3% yield, I think we would be having a different discussion here. Further, owning all 3 is never a bad thing, either!
I am not exactly sure what to do, as I do like all 3 listed above. I believe PG’s and JNJ’s dividend growth to be at or better than prior year (3% & 5%, respectively), which would change things; and April is the month they announce their dividend announcement, as well! Therefore, we should stay tuned to what those two dividend Goliath’s do.
What do you see? What would your preference be in the consumer dividend stocks arena? Who wins above, in your opinion? Please share your thoughts and feelings below, hoping that we receive a good mix of responses with their rationale, as well! Thank you again for reading, good luck and happy investing!
-Lanny