Three Consumer Stocks Offering Nifty Dividends
Dr. Osman is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Companies operating in the consumer goods industry are some of the most consistent performers in the market. The consumer goods industry has gone through some serious changes recently. Retailing, distribution, manufacturing and the supply chain have seen significant change. New sales channels, particularly web-based e-tailing, and the continuing drive for globalization have placed increasing pressure on the consumer goods industry.
However, these companies have mastered all of these problems and used them as an asset to increase efficiencies. As a result, these companies have been able to maintain exceptional growth, and are strong candidates for solid long term investment. Here, I have picked three companies from the sector, based on solid revenue growth, strong business models, established market position and potential growth opportunities.
Coca-Cola (NYSE: KO) is the most recognizable brand and the biggest manufacturer of non-alcoholic beverages in the world. Its core brand, Coca-Cola, is universally known and consumed daily in more than 200 countries. Due to its massive global presence, Coca-Cola generates the majority of revenue from its operations outside the U.S. Over the past three years, the company has shown remarkable revenue growth. At the end of 2009, Coca-Cola reported consolidated revenues of $30.9 billion, which went up to $46.5 billion by the end of 2011. For the trailing twelve months, the company has already surpassed the revenue figure of last year by reporting $47.6 billion.
Coca-Cola reported EPS of $1.85 at the end of last year. However, for the past twelve months, the EPS for the company has gone up to $1.95. Along with solid revenues, Coca-Cola has extremely impressive cash flows. Over the years, Coca-Cola cash flows from operations have shown a steady rise. For the trailing twelve months, the company generated $10.5 billion in operating cash flows, $1.1 billion more than the last year. Coca-Cola stock has had a solid year, and the stock is currently trading at around $37.
At the moment, consumption of carbonated drinks is declining in the U.S.; however, there are still solid growth opportunities in Asia and Africa. Coca-Cola has made significant investments in Africa and Asia, which will drive future growth for the company. Recently, Coca-Cola announced its plan to invest an additional $3 billion in India for sustained long term growth.
In addition to the strong growth prospects, the company pays a steady dividend. At the moment, Coca-Cola annual dividend stands at $1.02 per share, yielding 2.73%. The company has increased its dividend in each of the previous fifty years. For the past twelve months, cash dividends for Coca-Cola were $4.44 billion while free cash flows were $7.5 billion. Payout ratio based on free cash flows is just above 59%. Currently, the stock is trading at a P/E ratio of 19.6, slightly higher than the industry average of 19.3. I will rate Coca-Cola an A+ and a solid investment in these uncertain times.
PepsiCo (NYSE: PEP) manufactures a variety of snacks, as well as carbonated and non-carbonated beverages. Its key brands are Pepsi, Mountain Dew, Gatorade, Tropicana, Lay's, Doritos, and Quaker. Pepsi owns most of its bottling infrastructure in North America, but typically utilizes independent bottlers in international markets. Pepsi has also shown strong revenue growth over the past three years. At the end of 2009, the company generated $43.2 billion in revenues, which went up to $66.5 billion by the end of 2011. In the trailing twelve months, Pepsi has recorded $65.6 billion in revenues and $3.80 in EPS.
Cash flows are also remarkably strong at this giant. Operating cash flows at the end of the previous year were $8.9 billion, and $8.2 billion for the trailing twelve months. Future growth for most of the consumer goods companies will come from Asia. At the moment, Asia is the fastest growing market for food and beverages. Pepsi has a strong presence in the continent, and its organic revenue growth in Asia is around 10%. Recently, the company has opened its largest research and development facility in Shanghai, China. R&D is an integral part of Pepsi's growth, and this new center will augment its growth in Asia.
In addition to strong growth prospects, Pepsi pays an annual dividend of $2.15, yielding 3.05%. Dividend payments during the past twelve months were $3.3 billion while free cash flows stood at $5.44 billion. The payout ratio based on free cash flows is 60.6% for Pepsi. Currently, the stock is trading at a P/E ratio of 18.7, slightly lower than the industry average of 19.4.
Proctor & Gamble (NYSE: PG) is the world's biggest consumer product manufacturer. The firm operates with a lineup of leading brands, such as Tide laundry detergent, Charmin toilet paper, Pantene shampoo, Cover Girl cosmetics, and Iams pet food. P&G recently sold its last remaining food brand, Pringles, to Kellogg. Over the past three years, the revenue growth for the company has been sluggish compared to its peers. Revenues for P&G were $83.6 billion at the end of 2011, recording low on digit growth from $79 billion reported at the end of 2009. For the trailing twelve months, the company has reported revenues of $82.8 billion, and EPS of $3.84.
Cash flows for P&G has been fairly strong over the past three years. It generated $13.2 billion in cash flows from operations at the end of last year and $13.89 billion in the trailing twelve months. Despite slow growth in revenues, cash flows have been strong for P&G. Again, Asia will be the main market for this consumer goods giant to drive its future growth. There are massive opportunities for the company in Asia and Africa. Moreover, recent restructuring measures should bring costs down for the company and augment its EPS growth. I believe recent measures will improve the growth of P&G and enable the company to post substantial profits.
P&G also pays steady annual dividend of $2.248, yielding 3.23%. During the past twelve months, it paid cash dividends of $6.2 billion and generated free cash flows of $9.95 billion. Payout ratio for the company based on free cash flows is 62.3%. At the moment, the stock is trading at a P/E ratio of 22.6, a little higher than the industry average of 18.8.
Consumers good industry is usually least affected by changes in the economic environment. As a result, it provides a great hedge against the poor economic conditions. All the companies mentioned in the article have a huge presence in their respective markets, and impressive history of revenue growth. These three companies can be a valuable addition to the portfolio. Investors looking for solid long term investments should definitely take a look these companies.
ecofinstat has no positions in the stocks mentioned above. The Motley Fool owns shares of PepsiCo. Motley Fool newsletter services recommend The Coca-Cola Company, PepsiCo, and The Procter & Gamble Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!