The novel coronavirus and the resultant social distancing have messed up the economy, thanks to travel restrictions, business shutdowns and major supply-chain bottlenecks. These hurdles weighed on corporate results of companies across several sectors in the recently-reported first-quarter earnings cycle. As the pandemic started hurting businesses around mid-March, the second quarter stands in an even worse position, with the results of many companies expected to be under pressure.
Although bans are being lifted and businesses are gradually reopening, the constant rise in the number of cases has set in fears of a second wave of the crisis. And with no vaccine discovered yet, there is a lot of uncertainty surrounding the duration and severity of the virus. With so many qualms plaguing investors’ minds, dividend-paying stocks seem like a tempting option at the moment.
Dividend Stocks From the Defensive Zone: A Win-Win Situation?
Although companies across many sectors suspended buyback activities and dividend payments to preserve financial flexibility amid the crisis, there are players in the Consumer Staples universe, which are continuing with dividend payment practices even amid such difficult times. This tells a lot about their sustainable business models, long track record of profitability, rising cash flows, solid liquidity and some value characteristics.
In fact, the defensive Consumer Staples sector has always been a go-to place for investors. At a juncture where most sectors are grappling with coronavirus-led disruptions, many companies from the consumer staples space are gaining from burgeoning demand for essential items amid the coronavirus-led stockpiling. That said, investing in consumer staple dividend stocks seems to be the right thing to do at present.
Here’s the Right Way to Pick Them
Targeting dividend stocks from the Consumer Staples sector and combining them with a Zacks Rank of less than or equal to #2 (Buy), along with VGM Scores of A or B, will likely ensure a steady stream of cash to your portfolio. Although these stocks do not necessarily have the highest yields, they have an impressive dividend payment track record. Based on the stocks’ prospects, their pay-outs appear affordable and safe.
5 Rock-Solid, Dividend-Paying Stocks
The Clorox Company CLX announced a 5% increase in its quarterly dividend on May 20, taking it from $1.06 to $1.11 per share, which marked its 20th straight year of a dividend hike. The annualized dividend now stands at $4.44 per share compared with $4.24 in the same period last year. This renowned soap and cleaning products provider flaunts a Zacks Rank #1 (Strong Buy) and VGM Score of B. Notably, Clorox has a dividend payout of 62.2% and a dividend yield of roughly 2%. With an annual free cash flow return on investment of 31.3% ahead of the industry’s 22.6%, the dividend payment is likely to be sustainable. Clorox, which has rallied 35.9% year to date, has a long-term earnings per share growth rate of 5.8%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Medifast, Inc. MED is another worthwhile bet, with a dividend yield of 3.8% and a dividend payout of 73%. This provider of weight loss, weight management and healthy living products declared a quarterly dividend of $1.13 per share on Jun 17, which reflects an annualized rate of $4.52, compared with $3.38 last year. With an annual free cash flow return on investment of 63.9%, way ahead of the industry’s 7.2%, the dividend payment is likely to be sustainable. Medifast sports a Zacks Rank #1 and VGM Score of B.
Investors can count on Flowers Foods, Inc. FLO, which possesses a Zacks Rank #2 and VGM Score of A. This provider of packaged bakery products has been paying out dividends for 71 straight quarters now. We note that Flowers Foods announced a 5.3% hike in its quarterly dividend on May 21, taking it to 20 cents per share. The annualized dividend now stands at 80 cents per share compared with 76 cents in the same period last year. Notably, the company has a dividend payout of 74.5% and a dividend yield of 3.5%. With an annual free cash flow return on investment of 10.9%, ahead of the industry’s 7.2%, the dividend payment is likely to be sustainable.
Kimberly-Clark Corporation KMB is also worth noting. This Zacks Rank #2 company allocated $575 million toward share buybacks and dividend payments in first-quarter 2020. Further, the company declared a quarterly dividend of $1.07 per share on Apr 30, which reflected its 48th successive year of a raised dividend and 86th consecutive year of dividend payment. Incidentally, the annualized dividend now stands at $4.28 per share compared with $4.12 in the same period last year. With a VGM Score of A, Kimberly Clark has a dividend payout of 58.2% and a dividend yield of 3%. With an annual free cash flow return on investment of 31.8%, much ahead of the industry’s 14.4%, the dividend payment is likely to be sustainable.
Investors can also bet on Nu Skin Enterprises, Inc. NUS, with a dividend payout of 55.6% and a dividend yield of 3.9%. This provider of cosmetics, beauty and personal care products paid out dividends of $20.7 million in the first quarter of 2020. The quarter also marked the company’s 19th consecutive year of a dividend hike. The company’s current annual dividend stands at $1.50 per share compared with $1.48 last year. With an annual free cash flow return on investment of 14.4%, ahead of the industry’s 5.9%, the dividend payment is likely to be sustainable. We note that Nu Skin carries a Zacks Rank #2 and a VGM Score of A.
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KimberlyClark Corporation (KMB) : Free Stock Analysis Report
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MEDIFAST INC (MED) : Free Stock Analysis Report
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