3 High-Dividend Consumer Stocks Set to Soar as the Jobs Market Gains Steam

Resurgent consumer spending will lift the fortunes of these three high-yielding consumer sector giants, all of which sport robust dividends and attractive valuations.
By John Persinos ,

The latest data tell the story: the consumer is back. As the annual rite of conspicuous consumption commences, the surest way to profit from a freer spending consumer is to invest in best-of-breed consumer goods companies that also pay high dividends.

Below, we pinpoint three of the "bluest of the blue chips" in the consumer sector. They're all positioned to enjoy higher revenue and profits in the fourth quarter and well into 2016. They're also undervalued right now, largely because of temporary headwinds, such as currency fluctuations or merger costs. Now's the time to buy them, for steady income and growth at a decent price.

Friday's report on hiring and unemployment, released Friday by the U.S. Labor Department, underscores a raft of positive economic data that is strengthening consumer confidence as we head into the crucial holiday shopping season.

The American economy added 271,000 jobs in October, pushing the unemployment rate to 5.0%, from 5.1% in September. In a separate report this week, the Institute for Supply Management reported that its non-manufacturing index rose to 59.1 points last month from 56.9 in September. A reading above 50 signals expansion in the services sector.

What's more, rising home prices, combined with an overall reduction in personal debt, is generating a "wealth effect" that's prompting consumers in the U.S. a to loosen their purse strings.

The confluence of these trends will boost our three consumer goods companies. Let's take a closer look at three to buy:

PG

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The Procter & Gamble Company (PG) - Get Report

Procter & Gamble is a consumer brands powerhouse, with a stable of trusted products such as Tide, Bounty, Charmin, Dawn, Cheer, Olay, Gillette, and Oral-B that are ubiquitous parts of daily life for millions of people around the globe. As a cyclical consumer goods play, Procter & Gamble is a good bet as economic recovery strengthens.

Procter & Gamble reported third quarter fiscal 2015 earnings-per-share (EPS) of 92 cents, in line with the consensus estimate of 92 cents. The company posted revenue of $18.14 billion for the quarter, missing Wall Street's projection of $18.44 billion. During the same quarter in the previous year, the company posted EPS of $1.04. The company's revenue for the quarter was down 7.6% on a year-over-year basis.

Keep in mind, though, that Procter & Gamble generates roughly two-thirds of its revenue from overseas, which means currency devaluations in other countries exert a particularly harsh effect on the company's pricing power and hence earnings.

The specter of deflation and recession throughout the euro zone is proving a hurdle for the company, but that should ease as the European Central Bank steps up its purchases of bonds to provide monetary stimulus.

And to the company's credit, it has been slimming down by selling off underperforming divisions and brands, in an attempt to be a leaner company.

The company has sold off more than 100 brands, to focus its marketing and distribution resources on about 80 core, bestselling brands that make up roughly 90% of sales. Notably, the company dumped the Duracell brand and jettisoned the battery business. And despite U.S. federal budget cutbacks and lingering uncertainty in Europe, global economic indicators are increasingly positive and presage a pick-up in consumer spending in most geographic regions this year.

Within this paradoxical backdrop of quickening recovery and market turmoil, investors who seek both growth and downside protection should stick with large-cap, multinational companies such as Procter & Gamble that make products with enduring appeal.

The stock's dividend yield now stands at a juicy 3.75%, compared to the dividend yield of 2.9% for its sector of personal products and about 2% for the S&P 500.

The stock's trailing 12-month price-to-earnings (P/E) ratio of about 28 compares favorably to the average P/E of 26 for its peers. The stock has declined 16.14% year to date but it has risen 4.07% over the last month, suggesting that shares have momentum heading into the holiday season.

Procter & Gamble is in the vanguard of dividend-paying stocks that will see their fortunes rise and their dividends grow in coming quarters.

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UnileverPLC (UL) - Get Report

With dual headquarters in London, England and Rotterdam, the Netherlands, Unilever wields a portfolio of familiar household labels that are sold in more than 170 countries throughout Africa, Asia, Latin America, the Middle East, North America, and Western Europe. Analysts estimate that one out of every two individuals on the planet use Unilever's consumer products.

The company's stable of everyday items encompasses an enormous range of categories, including dressings and spreads; ice cream and beverages; personal care; and home care.

Unilever's brands include blockbuster sellers such as Hellmann's mayonnaise, Lipton tea, Knorr soups, Lux and Dove soaps, Ben & Jerry's, Klondike, Slim Fast, Popsicle, Ragú, and Sure and Degree antiperspirants.

As the global economy picks up steam, the company is aggressively pushing its iconic products into emerging markets, where increasingly affluent middle class consumers associate Unilever products with the good life in the West.

Coveted brands and cost efficiencies, combined with rising consumer spending, will put Unilever in a uniquely strong position this year in the consumer goods sector.

The company's prospects are further enhanced this year by the steps it has taken to improve efficiency, by streamlining operations and outsourcing generic functions that are more cheaply handled in developing countries.

In the developing world, disposable incomes are rising in tandem with consumer sophistication. According to a recent report from the Boston Consulting Group, China and India will be home to about one billion middle-class consumers by 2020. Emerging markets also have populations that are younger, and hence more prone to spending, than those in developed countries.

This boom in the global middle class will translate into a huge increase in spending for consumer items that most North Americans and Europeans take for granted.

Unilever is playing pied piper to this fledgling (and increasingly status conscious) middle class. Significantly, the company recently announced that it would invest €50 million to establish a deodorant-making plant in India. Slated for construction in the Indian state of Maharashtra, the facility would serve growing demand in Southeast Asian markets.

Unilever reported that third-quarter underlying sales rose 5.7% year-over-year (YoY), up from 2.9% YoY growth in the second quarter. Most of the increase was driven by sales growth in Latin America. Nearly 60% of Unilever's annual sales derive from developing markets. Management expects full-year underlying sales to rise between 2% and 4%.

With a P/E of 24 and a dividend yield of 3.11%, this stock offers steady growth and income at a fair price.

KHC

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The Kraft Heinz Co. (KHC) - Get Report

Kraft's copious pantry of famous food brands includes Velveeta, Kool-Aid, Cheez Whiz, Maxwell House and Jell-O.

Now that Kraft has merged with ketchup-king Heinz, the combined entity is enjoying enormous economies of scale and a streamlined product offering, whereby the best brands are retained and weaker sellers are jettisoned.

Kraft Heinz reported that third-quarter sales fell 9% from the same quarter a year ago, to $6.36 billion, missing the analyst consensus of $6.7 billion. Adjusted EPS of 44 cents compared with 46 cents in the same year-ago quarter and missed Wall Street's expectations of 62 cents.

As culprits for the declines, management cited the effects of currency fluctuations and divestitures.

The company is poised for better quarters ahead. The company announced this week that it will close seven factories and cut 2,600 jobs in North America in an effort to reduce costs. These cuts come on top of 2,500 workers in the region that the company said it would layoff in August. As it reduces overhead and streamlines its product portfolio, the company will enjoy higher margins. At the same time, global growth and increasing demand for Western-style processed food in developing countries should drive revenue growth for the rest of the year and beyond.

It will take time for the massive merger between Kraft and Heinz to bear fruit. In reporting third quarter results, management expressed confidence that it can significantly boost EPS over the next few years by cutting costs and enhancing profit margins, a goal that appears eminently doable. In the meantime, you can enjoy the stock's 2.92% dividend yield.

Looking for other high-yielding stocks that are cheaply priced? Click here for your free income report.

John Persinos is editorial manager and investment analyst at Investing Daily. At the time of publication, the author held no positions in the stocks mentioned.

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