Is Kimberly-Clark The Best Staples Stock to Buy?
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Consumer staples stocks are highly regarded by the investing community for the reliability of their profits. It isn’t difficult to understand why. Companies like Kimberly Clark (NYSE: KMB) sell products ranging from paper towels to tissues, products that consumers will purchase regardless of the overall economic climate.
In addition, consumer staples stocks traditionally distribute a majority of their profits to shareholders via compelling dividend yields. Over the past couple of years, Kimberly Clark has rewarded its investors with not just hefty dividends, but also impressive share price gains. As a result, this begs the question: is Kimberly Clark, the company behind Kleenex, Cottonelle, and Huggies, the best consumer staples stock to buy today? Or is there a more worthy industry peer to consider?
Slow-and-steady stocks that have been anything but
Investing in the consumer staples sector is usually a conversation dominated by dividend payouts, and less so by compelling share price gains. However, notable industry titans including not just Kimberly Clark, but also Clorox (NYSE: CLX), and Colgate Palmolive (NYSE: CL), have soared in price over the past year.
Clorox is an industry leader with many well-known brands. The company sells its products in more than 100 countries, and has many household brands including its namesake bleach, Kingsford charcoal, Pine-Sol cleaner, and Glad trash bags. Nearly 90% of Clorox’s brands hold the No. 1 or No. 2 market-share positions in their categories.
Colgate Palmolive is no slouch. The company is tightly focused on Oral Care, Personal Care, Home Care, and Pet Nutrition. Colgate sells its products in over 200 countries around the world, under such internationally recognized brand names as Colgate, Palmolive, Mennen, Speed Stick, Softsoap, and Irish Spring.
Since these stocks have rallied so much in recent months, their valuations may be a cause for hesitation among investors considering buying shares. Clorox, Kimberly Clark, and Colgate Palmolive trade for 20 times earnings. Colgate-Palmolive’s valuation now exceeds 25 times earnings.
Hefty dividends that will keep coming in for many years
Thankfully, each of these companies has continued to grow dividends at a healthy rate, meaning new investors are still getting market-beating yields. The broader market, as measured by the S&P 500 Index, yields roughly 2%. Kimberly Clark and Clorox both yield 3.3%, while Colgate yields just 2.5% at recent prices, due to its higher multiple.
Moreover, each of these stocks should continue to increase their shareholder payouts for many years to come. As previously mentioned, their stable business models mean steady, reliable growth. In addition, they each have fantastic track records of raising dividends every year, meaning investors now fully expect those streaks to continue.
To emphasize, consider the dividend histories of these companies. Clorox recently raised its dividend by 11%, marking the 36th consecutive year of a dividend increase. Kimberly Clark has raised its dividend for 41 years in a row, and has paid dividends for 79 consecutive years. Colgate Palmolive, meanwhile, recently bumped up its shareholder payout by 10%. Colgate-Palmolive has paid uninterrupted dividends on its common stock since 1895 and increased payments to common shareholders every year for an amazing 51 years.
Ideal buy-and-hold stocks
The merits to buying these stocks are clear: world-class brands, reliable growth regardless of the overall economy, and dividend increases every year.
These stocks are ideal for more risk-averse investors who are looking for safe stocks to buy and hold for many years, and can be a foundation of any portfolio.
At the same time, it appears the quick money has been made. Each of these stocks has rallied considerably over the past couple of years and now trades at a premium to the overall market. Investors looking for moderate but reliable returns should think of not just Kimberly Clark, but Clorox and Colgate Palmolive as well, as ideal for investment.
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Robert Ciura has no position in any stocks mentioned. The Motley Fool recommends Kimberly-Clark. 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!