Prospects Look Bright For Household And Personal Product Industries

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Many investors, understandably, begin to worry about their stocks when they encounter economic uncertainty. Stocks, as a consequence, can show widely varying results because of how much the ups and downs of the market are tied to investor expectations. Investing in what are referred to as "defensive sector stocks" can minimize exposure to such economic-related risk.

The traditional wisdom about the best defensive sector stocks for investors focuses of food, clothing, and shelter, essentials that everybody needs. Such stocks are among the most resistant during periods of economic downturns. Accordingly, they represent a relatively safe opportunity for investment during a down economy.

Such defensive stocks pay higher dividends, combined with steady price appreciation. This is particularly true of household and personal product industries stocks. In picking out such stocks, it is best to focus on those companies that present good cash flows, balance sheets, and income statements to lend support to both dividends and share price appreciation.

In this article, I pick three companies from the household and personal product industries for their consistently growing returns. These companies all have solid financial statements to back continuing returns for shareholders. Let's evaluate each company's financial situation to scan its ability to uphold increasing returns for investors.

Procter & Gamble (NYSE: PG) offers branded consumer packaged goods. The company markets its products in approximately 180 countries. Procter & Gamble has been consistently paying dividends since 1890. On top of this, over the past 57 years, it has been consistently able to increase its dividends. Recently, it announced a 7% increase in dividends, which brought them to $0.6015 cents per share.

 

2011-06

2012-06

TTM

Revenue

$82.55

$83.68

$83.32

Gross Margin

50.6%

49.3%

49.6%

Operating Margin

19.2%

15.9%

17.8%

EPS

$3.93

$3.66

$4.41

Morningstar.com [Revenue in billions]

For dividend investors, the company has been displaying a solid income statement. It has been able to increase its margins over the past few quarters. It has one of the best operating and net margins among the industry average. With the improvement in consumer spending, and Procter & Gamble's ability to improve margins, in the trailing twelve months (TTM) its earnings per share (EPS) increased to $4.41.

On the other hand, the company has the potential to generate strong cash flows. It's free cash flows adequately cover current dividends. In the TTM, its free cash flow stood at $10.695 billion, while dividend payments stood at $6.332 billion. The company is also seeking to reduce its share count, and, in the TTM, repurchased $6.244 billion of shares.

In order to increase returns for shareholders, the company is focusing on its biggest profitable businesses, and on innovations. Procter & Gamble is concentrating more on developing markets for potential growth. Generally, these markets offer a better opportunity for growth.

With this strategy, the company is looking to enhance organic sales 1%-2%, quicker than the overall market in which it competes. Procter & Gamble is anticipating increasing its EPS from high single-digits to low double-digits. 

Kimberly-Clark (NYSE: KMB) is engaged in the manufacturing and marketing of a variety of essential products to better people’s lives around the globe. Kimberly-Clark was named among the top dividend-payers in the consumer defensive sector. The firm offers a quarterly dividend of $0.81. Recently, the company increased its quarterly dividend by 9.5%. It has a long history of dividends and has raised them for 41 consecutive years.

Recently, Kimberly-Clark announced first quarter results, with operating profit of $783 million. At the end of Q1, sales were up by only 1%, while its solid margins led it to increased operating profit by 12%. However, the company has shown improvement in its organic sales. Its organic sales rose by 3%, together with increases of 6% in North American consumer tissue and 5% in Kimberly-Clark International.

Furthermore, its cash flows are also in a solid position. It increased its operating cash flows to $607 million at the end of Q1. Kimberly-Clark is also spending heavily in growth opportunities. In Q1, its capital spending stood at $274 million. With the solid improvement in cash flows, it is also working on a share repurchase program.

For the Q1, Kimberly-Clark repurchased 5.5 million shares. As an indication of its strong cash flows, it returned nearly $800 million to investors through a combination of dividends and its repurchase program. With a smart business strategy and solid financial performance, it raised its full-year earnings targets from $5.60 to $5.75. 

Clorox (NYSE: CLX) is a manufacturer and marketer of consumer products. The company sells its products through grocery stores, mass merchandisers, and other retail outlets. Clorox operates in four main business segments, namely cleaning, household, lifestyle, and international.

Clorox has been consistently paying a stable and increasing dividend. At present, Clorox offers a quarterly dividend of $0.64 per share. In the past five years, the company increased its dividend by 60%. In the TTM, its payout ratio based on dividends stood at 58.2%, which is manageable.

Recently, Clorox announced Q2 results with earnings of $123 million, up 18% over the past year's quarter. It has shown solid performance in all business segments. On a consolidated basis, its sales grew by nearly 9% over the past year’s quarter. Additionally, it has shown a solid gross margin expansion. In the Q2, Clorox improved its gross margin by 100 basis points to 42.5%.

Its cash flows are also in a solid position to support and back consistently increasing returns for investors. In the TTM, its operating and free cash flows stood at $769 million and $557 million, respectively. Its free cash flow is enough to cover current dividend payments. In the TTM, its dividend payments stood at $323 million.

Final Notes

Procter & Gamble is consistently paying increasing dividends. The recent 7% increase in dividends symbolizes the company’s strong financial situation. Procter & Gamble is also trading at attractive multiples, compared to industry peers. Procter & Gamble can be a safe pick for dividend investors.

Kimberly-Clark is displaying a strong financial situation. The company’s revenue growth is quite stagnant. However, its restructuring efforts led it to enhance margins. The stock looks pricey at present. Nevertheless, Kimberly-Clark looks like a safe stock for dividend investors.

Clorox is, and remains, a solid stock for dividend investors. The company had strong year-over-year sales growth, along with a solid gross margin, which is key for any companies consistently generating profitable growth. With a 5% sales growth and 10% EPS growth in the first half of the year, the company improved its full-year outlook. Clorox is anticipating producing EPS in the range of $4.25-$4.35.

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siraj sarwar has no position in any stocks mentioned. The Motley Fool recommends Kimberly-Clark and Procter & Gamble. 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!

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