Wednesday, January 5, 2011

Six Consumer Stocks to own in 2011

With the end of the financial crisis of 2007-2009, and unemployment leveling off, investors are once again bullish on stocks. The stock market, which many economists consider to be a leading indicator of the economy, is trading at its highest levels in over two years. Apart from the so called PIGS – Portugal, Ireland, Greece and Spain, the world economy is headed for another year of positive GDP growth in 2011. The most notable economic rebound is seen in the emerging market powerhouses like Brazil, China and India, where the growing number of middle class consumers is generating higher profits for the companies featured below. Overall, growth in the world economy translates into consumers increasing their discretionary spending and trading up from generic brands to brand name products.

The companies that could benefit from the increase in consumer spending all have diversified portfolios of strong brand names, wide moats and high returns on equity. Their strong fundamentals have enabled them to weather several recessions over the past 2 decades and have also allowed them to increase dividends for over a quarter of a century. The companies that could benefit from increased consumer spending include:

Wal-Mart Stores (WMT) is the world’s largest retailer, which operates retail stores in various formats in the US and worldwide. The company has raised distributions for 36 years in a row and yields 2.30%. I would add to my position in the company on dips below $49. Check my analysis of the stock.

PepsiCo, Inc. (PEP) manufactures, markets, and sells various foods, snacks, and carbonated and non-carbonated beverages worldwide. The company operates in four divisions: PepsiCo Americas Foods (PAF), PepsiCo Americas Beverages (PAB), PepsiCo Europe, and PepsiCo Asia, Middle East and Africa (AMEA). PAF divisions. The company has raised distributions for 38 years in a row and yields 2.90%. The company is attractively valued at the moment at 16.60 times earnings. Check my analysis of the stock.

Johnson & Johnson (JNJ) engages in the research and development, manufacture, and sale of various products in the health care field worldwide. The company operates in three segments: Consumer, Pharmaceutical, and Medical Devices and Diagnostics. The company has consistently raised distributions for 48 years in a row and yields 3.50%. The company is attractively valued at the moment at 12.80 times earnings. Check my analysis of the stock.

The Clorox Company (CLX) engages in the production, marketing, and sales of consumer products in the United States and internationally. The company operates through four segments: Cleaning, Lifestyle, Household, and International. The company has regularly raised distributions for 33 years in a row and yields 3.50%. The company is attractively valued at the moment at 14.30 times earnings. Check my analysis of the stock.

McDonald’s Corporation (MCD), together with its subsidiaries, operates as a worldwide foodservice retailer. The company has raised distributions for 34 years in a row and yields 3.20%. The company is attractively valued at the moment at 17 times earnings. Check my analysis of the stock.

Kimberly-Clark Corporation (KMB), together with its subsidiaries, engages in the manufacture and marketing of various health care products worldwide. The company operates in four segments: Personal Care, Consumer Tissue, K-C Professional & Other, and Health Care. The company has raised distributions for 38 consecutive years and yields 4.20%. The company is attractively valued at the moment at14.30 times earnings. Check my analysis of the stock.

The sustainable dividends that these defensive companies are paying would certainly provide a cushion if the market goes down or stays flat throughout 2011. A continuation of the bullish performance of 2010 this year would most likely lift these stocks as well, leading to strong capital gains in the process. The diversified revenue streams of their products and their global reach would help these companies withstand any economic conditions. Any decline in the underlying stock prices is an opportunity to initiate or add to existing positions.

Full disclosure: Long all stocks mentioned above

Relevant Articles:

- Ten Dividend Stocks with High Returns on Equity
- Strong Brands Grow Dividends
- Dividend Aristocrats list for 2011
- Dividend Investing Works in All Markets

5 comments:

  1. Hey DGI,

    another very interesting consumer dividend growth stock I've not yet seen mentioned on your blog is British Reckitt Benckiser (RB.L or RKBKF.PK). It offers an impressive multi-year dividend growth track record. See http://www.rb.com/Media-investors/Share-price-information/Dividend-calculator

    Keep on your great blog!
    Leo

    ReplyDelete
  2. Hello!

    What you think about high yield ETF´s??

    I think those etf´s are the best protection against inflation, bearish markets and so on..
    Plus the dividends always beat the expenses of the ETF so its aaa CHEAP!

    -ETF-guy

    ReplyDelete
  3. I own MCD too and am thinking of buying CLX. Which is more recession proof you think? Also, you might find my recent analysis of Apple interesting.

    http://sigmaswan.blogspot.com/

    ReplyDelete
  4. This is very helpful! My husband wants to buy stocks, but it's just so nerve racking, trying to pick which ones to buy!

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  5. Thanks DGI. I agree that its important to not overpay for these stocks and they are all attractively valued at the moment. I don't think that you'll get WMT at 49 any time soon, but even at its current price (54.41) its PE is only 13.55 which is still a good value.

    ReplyDelete

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