Dividend Kings Are Proven Payers For Tough Times
Recession or not, Dividend Kings have a proven track record of success that includes over 50 years of consecutive distribution increases. This tells us management has the foresight to run their companies profitably in both good times and bad. The stocks on our list today are not only Dividend Kings but also Consumer Staples, the sector we most want to be in during an economic downturn. While we can’t predict with 100% certainty what will happen with the economy, inflation, and interest rates we can predict that these companies will continue to pay their dividends and even raise them while the rest of the stock market is floundering.
Colgate-Palmolive Yields 2.55%
Colgate-Palmolive NYSE: CL is a Dividend King with 60 years of consecutive dividend increases under its belt. As of the last increase, the stock is paying about 2.55% in yield while trading about 24X its earnings. This is a bit of a high valuation but Colgate-Palmolive, like all the Dividend Kings, is a very high-quality stock and desirable for many reasons. Analyst Christopher Graja at Argus just called the stock out as “a high-quality stock for the times” when he reiterated a Buy rating and $90 price target. In his view, the company’s pricing power will be enhanced by product innovation and cost-control efforts that should more than offset inflation. His target compares well to Marketbeat.com's consensus of $85.50 which implies about 15% of upside for the stock.
Shares of Colgate-Palmolive are trading at the lowest levels since the pandemic began and offering an attractive entry point. Price action appears to be confirming support at a slightly higher level as well, and the indicators are consistent with support. Assuming the market is able to hold the stock at this level, we would expect to see it move sideways and up within the long-term range. The high end of the range is near the $85.50 consensus target.
Hormel Foods, Lower Yield But Stronger Growth
Hormel Foods (NYSE: HRL) is a Dividend King with 56 years of consecutive distribution increases to its credit. This stock yields a slightly lower 2.35% compared to Colgate-Palmolive but the distribution is growing at a faster pace. Hormel has been increasing its payout at a near 10% CAGR which is more than triple the pace of Colgate. In addition, Hormel carries a lower payout ratio and has a better earnings growth outlook to fuel the action. Hormel recently cut its growth forecast but to a level more in-line with the Marketbeat.com consensus so it’s not a worry for us. The result, however, was a 15% decline in share prices that is opening today’s opportunity. The decline in share prices has the price action moving back toward the long-term trendline that has been dominating price action since 2008. It is our view that a touch of the trend line will spark another round of buying.
Proctor & Gamble, The High-Yield Value Among Dividend Kings
Proctor & Gamble (NYSE: PG) is no bargain trading at 23X its earnings but it is slightly cheaper than Hormel and Colgate while paying the highest dividend of the lot. Proctor & Gamble is yielding about 2.75% at the current price point and has been increasing for the last 65 years. The payout ratio is also the highest at 60% but even at this level, we view the payout as incredibly safe. Based on the cash flow, balance sheet, and earnings outlook we see no reason why the company cant sustain a few more increases at the 5% pace it has held over the last few years.
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