According to data on StandardandPoors.com, consumer staples companies in the S&P 500 have approved nine dividend increases year-to-date. There have been no decreases or suspensions. This is in sharp contrast to the financials, which have had five increases, 25 decreases and two suspensions year-to-date. Here are my thoughts on why consumer staples companies have been so resilient on the dividend front. (For more, see A Guide To Consumer Staples.)
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Consumer Staples Show Investors The Money
While consumers certainly have reigned in their purchases across the board, we still all have to eat and buy certain household products. As a result, these companies remain in relatively good shape. In addition, earnings in that sector have been good as well.
For example, Coca-Cola (NYSE:KO) met earnings expectations in first-quarter results announced April 21. In fact, it beat expectations in each of the prior four quarters, and it's expected to grow earnings at a 9.7% clip from 2009 to 2010. Earlier in the year, its board gave the nod to a dividend increase from 38 cents to 41 cents.
How resilient is Coke in these tough times? Consider the following comment made by its chief executive, Muhtar Kent, in the Q1 earnings announcement: "Consumers around the world love and trust our brands and turn to us to provide simple moments of refreshment nearly 1.6 billion times every day. And every week, our system reaches 20 million customers around the world with innovative, category-leading brands and services that deliver at the point-of-sale. There really is no better consumer business to be in today...or tomorrow." It's no wonder the company has the financial wherewithal to increase its dividend. (For more, see Surviving Bear Country.)
Other Companies Worth Watching
Another consumer staple stock that perks my interest is Altria Group (NYSE:MO), the Virginia-based cigarette company. It has met or beat earnings expectations in each of the last four reported quarters. It's also expected to grow earnings at a respectable 5.8% from 2009 to 2010. Finally, it has managed to keep its dividend steady at 32 cents despite these trying times. Given that the United Nations has estimated that the world's population could top 9 billion by 2050 (it's now said to be under 7 billion), the company could see very solid earnings and dividend increases in the future.
Procter & Gamble And Colgate Palmolive
Proctor & Gamble (NYSE:PG) has its hands in a wide range of products that many of us use every day, from Pampers to Crest. But even beyond its product line, investors will appreciate that it has met or beat estimates in each of the last four quarters. This intrigues me if for no other reason than it may lure others, particularly institutions looking to dress up their portfolios with companies that are producing into the stock.
Even though many may be wringing their hands over the willingness of consumers to part with their dollars, Proctor & Gamble's baby care and family care business actually grew at a respectable 3% in its last reported quarter. The company also has had solid margins (its gross margin came in at 51.6% of sales in its last quarter), which should enable it to weather this lingering storm. Favorable long-term population demographics cited above seem like they will benefit P&G as well. Incidentally, its board upped the dividend from 40 cents to 44 cents earlier in April. (For more, see Demographic Trends And The Implications For Investment.)
Colgate-Palmolive (NYSE:CL), meanwhile, has brands like Colgate, Palmolive and Ajax under its umbrella, which in and of itself should make it a force to be reckoned with for some time. But even beyond that, it has cleared the earnings bar in each of the last four reported quarters. And in spite of the fickle American consumer, its North American sales actually grew 1.5% in Q4.
Furthermore, its greater Asia/Africa segment, which constituted 17% of its sales, and where I expect a large population growth in the future, grew its sales 1% in Q4. Finally, in the release its chief executive, Ian Cook, said: "Overall, despite the global economic slowdown, we are comfortable with external profit expectations for the first quarter and full year 2009." The fact that he was willing to come out so early and say that exudes confidence. The company's board upped the dividend from 40 cents to 44 cents (starting in Q2.)
It is interesting to note that consumer staples companies have seen a large number of dividend increases in the face of this slowing economy. Going forward, I feel that because these companies continue to bring in money and positively surprise analysts, these stocks could fare very well.
For further reading, see Recession-Proof Your Portfolio.