A number of consumer discretionary stocks have taken a beating along with the broader markets in the wake of the Brexit vote. Just look at the Consumer Discretionary Select Sector SPDR (ETF) (NYSEARCA:XLY), which is off more than 2% even with the relief rally of the past couple of days.
But even consumer staples — those blue-chip, often dividend-paying companies you can depend on through thick and thin, have lagged. The Consumer Staples Select Sector SPDR (ETF) (NYSEARCA:XLP) hasn’t gotten back to square since last Friday, off about 1%.
That said, a number of consumer stocks on both sides of the discretionary/staples aisles are actually sized right for the challenge of battling an uncertain market — not just thanks to the Brexit, but also amid slower growth in the U.S. and abroad, and continued will-they-or-won’t-they speculation over whether the Federal Reserve will give us another rate hike in 2016.
The key to finding these consumer gems? Don’t just target pure defense — look for a quality mix that also includes a little offense.
The following three consumer stocks provide just that, doling out dividends of at least 4%, but also double-digit earnings growth expectations for the next few years.
Consumer Stocks to Buy: Mattel, Inc. (MAT)
Dividend Yield: 4.9%
5-Year Average Annual Earnings Growth Estimates: 12%
Those of you with children at home (or who are just kids at heart) are familiar with Mattel, Inc. (NASDAQ:MAT) toys, ranging from Barbie and Monster High dolls to Hot Wheels and Batman action figures.
But Mattel isn’t just resting on those brands — the company earlier this year announced that it was bringing on popular designer Jonathan Adler to help revitalize the company’s Fisher-Price brand.
UBS analysts sees potential, believing the toy industry “could represent a relatively attractive alternative within the broader consumer space.” And in fact, of the past five analyst notes on MAT stock, four were upgrades or initiations to a “buy” recommendation.
Analysts expect Mattel’s profits to improve by a little more than 11% this year, followed by a climb of more than 12% in 2017. And that’s about the kind of clip Wall Street expects for the next five years.
Combine that with a nearly 5% dividend, and you’ve got a true double threat.
Consumer Stocks to Buy: General Motors Company (GM)
Dividend Yield: 5.4%
5-Year Average Annual Earnings Growth Estimates: 14%
General Motors Company (NYSE:GM) is on the rebound over the past couple of days, up 2%. But while GM did take a beating after the Brexit vote, its shares have been in trouble for most of the year, off 18% so far in 2016.
Consider this a dip worth buying.
Over the next five years, GM is expected to grow earnings at almost double the rate it grew profits over the past five. Specifically, GM is slated to improve its earnings by 13% this year before cruising at 14% growth over the next half-decade. That’s in contrast to the 7% growth it averaged since 2011. Not bad for an auto “dinosaur.”
That growth should come in part as GM revamps its assembly plants to make better use of new technologies and processes, through investments such as a $290 million push in its Bowling Green Assembly plant.
Meanwhile, GM has firmly established itself as a dividend giant, kicking off a new 30-cent payout in 2014 and already growing it by more than 25% since then. That, as well as weakness in shares of late, has boosted the dividend to well more than 5%.
Consumer Stocks to Buy: Cal-Maine Foods Inc (CALM)
Industry: Poultry Farming
Dividend Yield: 4.8%
5-Year Average Annual Earnings Growth Estimates: 37%
Cal-Maine Foods Inc (NASDAQ:CALM), a defensive play, has lived up to its role since the “Brexit,” with investors bidding shares up more than 6% after the U.K,’s vote to leave the European Union shook global markets.
Cal-Maine prides itself a sustainable producer and supplier of eggs and egg-related products. As America’s largest egg producer, CALM was responsible for 23% of shell egg consumption in 2015.
Whether it’s the Brexit or another global crisis, people are just not going to just up and stop buying eggs.
When Cal-Maine next reports earnings on July 18, you’ll likely read headlines about a loss for the quarter — that weakness is expected. It’s also an outlier, as the company’s expected to earn a whopping $6.38 for the full year, nearly double what it earned in 2015.
As a note, Cal-Maine has a variable dividend that comes out to a third of each quarter’s income. For context, that means that across the full financial year, if CALM holds up to expectations, payouts (between the ones it has made, and the ones it still has to pay) should come out to about $2.10, which is a yield of nearly 5%.
As of this writing, John Kilhefner did not hold a position in any of the aforementioned securities.