Dividend Stocks

Consumer staples stocks are a good source of stable dividends and steady growth from year to year. Businesses that sell products or services that consumers need in everyday life tend to have steady growth, even with the economy is in a recession.

These companies are then able to provide dividends to shareholder, often raising them every year. The ability to withstand economic downturns is one of the prime reasons that the consumer staple sector is tied for the highest number of names in the Dividend Aristocrats index.

Investors who look at the sector as boring can miss out on both the growth and the income that these stocks provide.

This article will examine three of our favorite consumer staple stocks for growth and income, including:

  • Keurig Dr Pepper (NASDAQ:KDP)
  • Mondelez International (NASDAQ: MDLZ)
  • Unilever (NYSE:UL)

Dividends: Keurig Dr Pepper (KDP)

Source: Shutterstock

Keurig Dr Pepper came into its present form following a merger between Dr Pepper Snapple and Keurig Green Mountain. The nearly $20 billion merger took place in mid-2018. Keurig Dr Pepper has annual revenues of $11.6 billion.

Keurig Dr Pepper’s portfolio of products has a wide range of brands that are popular with consumers. Among its 125 individual brands are Dr Pepper, Canada Dry, 7UP, Snapple, Green Mountain, Newman’s Own and Krispy Kreme.

The merger also diversified the company away from just carbonated beverages. For example, coffee is now a main focus for Keurig Dr Pepper. The company’s brewing system has a market share of approximately 20% in the U.S., with a stated goal of achieving 30% to 50% market share.

The company already controls a substantial share of the market for brewing systems and aims to increase its foothold. Remarkably, brewing systems grew almost 30% year-over-year in the most recent quarter, driven by innovative products and new brewers.

Coffee remains a competitive and fragmented space, but Keurig Dr Pepper is largely entrenched as the go-to name. With innovation and new brewery systems, the company should only expand its leadership position.

Keurig Dr Pepper had a sizeable amount of debt on its balance sheet prior to the merger, but the company has been aggressive in reducing this burden. The company had paid down $2.5 billion worth of debt through the end of the last quarter, reducing its leverage ratio from 6x at the time of the merger and 4.5x at the end of 2019 to 3.4x at the end of the most recent quarter. The company aims to reduce its leverage ratio to below 3x by the end of this year.

A lower level of debt should enable growing dividends as well. The company had paid an annualized dividend of 60 cents per share since the merger, but raised it by almost 19% earlier this year. Shares yield 2.1%, a superior yield to the 1.3% average yield of the S&P 500 index. And with top names in multiple beverage categories, it is likely that Keurig Dr Pepper continues to grow dividends.

Mondelez (MDLZ)

Source: Shutterstock

Second among our stocks that pay dividends, Mondelez has annual revenues in excess of $26 billion and is valued at $83 billion today. The company has a wide selection of snacks, candy and beverage products. Top selling products include Cadbury, Chips Ahoy, Oreo, Ritz, Tang and Trident.

Many of products are at the top or near the top of their individual categories. For example, Oreo is the top selling cookie in both the U.S. and the world, Chips Ahoy is the second most popular cookie in the U.S. and belVita is the number one breakfast biscuit globally.

Mondelez is truly an international company that benefits from a very diverse geographic presence. Europe, North America, Asia/Middle East/Africa and Latin America contribute 38%, 31%, 22% and 9% of annual revenues, respectively.

The company experienced robust growth rates in all regions in its most recent quarter, but emerging markets were especially strong. Latin America surged 31% while Asia/Middle East/Africa were higher by 17.4%. Emerging markets as a whole accounted for just over 16% of revenues.

Though these are the smallest contributors to revenue at the moment, these areas will be important catalysts for growth going forward. This is especially true since consumers in developed markets appear to be more conscious of the food and drink that they consume.

With a diversified business model, strong brands and leadership positions in many categories in most regions, Mondelez is likely to maintain its billing as one of the top food and snack companies in the world.

This should allow the company to continue to grow its bottom-line as well as its dividends, which increased the last seven consecutive years. The stock offers a yield of 2.3%, which is a full percentage point higher than the S&P 500 index.

Dividends: Unilever (UL)

Source: BYonkruud / Shutterstock.com

With nearly 400 brands in its portfolio, the London based Unilever is one of the largest consumer staples companies found in the world. The company has operations in approximately 200 countries, has a market capitalization of $135 billion and generates annual revenues of more than $26 billion.

Like the other names in this article, Unilever holds an incredible number of top names in many different categories. The company’s top brands cover a wide variety of categories and include Axe, Ben & Jerry’s, Breyers, Dove, Hellmann’s, Q-tips, Suave and Vaseline.

Unilever has 14 of the top 50 global consumer brands in its portfolio, including Dove, Knorr and Lipton. This gives Unilever a broad base of known and trusted brands that attract consumers.

Unlike the other names discussed here, the company’s products cover more categories than just food and snack. Unilever is incredibly diverse, with 42% of sales coming from beauty and personal care, 37% from food and refreshment and 21% from home care. With this balanced model even with each business area, Unilever is much more able to withstand weakness in any one product line or category and still deliver solid results.

Unilever is also seeing excellent growth out of the emerging markets. These regions grew more than 8% in the last quarter, which compares very favorably to just a 1.5% improvement in the developed markets. With an increased focus on countries such as Bangladesh, China, Pakistan and Vietnam, which are beginning to see the rise of a middle class, Unilever is well positioned to capitalize on future gains from emerging markets.

Unilever is one of the more diversified consumer staple companies in the market. Because of these strengths, Unilever has raised its dividend for four decades in Euros. At 3.8%, the current yield is nearly triple that of the market index and is also one of the highest yields that the stock has offered over the last decade.

On the date of publication, Bob Ciura did not have (either directly or indirectly) positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Bob Ciura has worked at Sure Dividend since 2016. He oversees all content for Sure Dividend and its partner sites. Prior to joining Sure Dividend, Bob was an independent equity analyst. His articles have been published on major financial websites such as The Motley Fool, Seeking Alpha, Business Insider and more. Bob received a bachelor’s degree in Finance from DePaul University and an MBA with a concentration in investments from the University of Notre Dame.

Articles You May Like

Dental supply stock surges on RFK’s anti-fluoride stance, activist involvement
Cathie Wood says her ‘volatile’ ARK Innovation fund shouldn’t be a ‘huge slice of any portfolio’
Three Mile Island restart could mark a turning point for nuclear energy as Big Tech influence on power industry grows
Quantum Computing: The Key to Unlocking AI’s Full Potential?
Activist ValueAct is poised to trim fat and help boost profits at Meta Platforms. Here’s how