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3 Back-of-the-Shelf Consumer Stocks With Growth and Income

These stocks should recover based on new business lines and increasing payouts

By Will Healy, InvestorPlace Contributor

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3 Back-of-the-Shelf Consumer Stocks With Growth and Income

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Many tend to ignore consumer stocks not oriented toward the latest technology. Consumers and investors tend to focus on companies that produce new gadgets or bring the next wave of tech innovation. Many “boring” consumer stocks that have less of a tech focus, however, offer an impressive track record with dividends. This serves as an advantage over a tech industry, which tends to lag the S&P 500 when it comes to offering dividend stocks.

Due in large part to dividends and a loyal customer base, consumer stocks tend to offer stability lacking in some of these more exciting stocks. Also, contrary to popular belief, many of these companies have become innovation leaders.

Although the press may not always report it, these firms often pioneer new products that place them on the cutting edge in their industries.

The following three companies lead this innovation. They also offer growth rates, valuations and dividend yields that should draw the attention of stock buyers.

AbbVie Stock ABBV stock
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AbbVie (ABBV)

Admittedly, AbbVie (NYSE:ABBV) has made a few of my stock lists. I had hoped not to write about ABBV for that reason. However, when an equity offers an almost single-digit forward price-to-earnings (P/E) ratio, double-digit profit growth and the third-highest dividend yield among dividend aristocrats, I cannot leave it off in good conscience.

ABBV stock trades a perfect storm for buyers. The patent on Humira faces patent expirations across the world. This has inspired a wave of selling in AbbVie. Despite this, analysts believe the company’s drug pipeline will keep profits growing at double-digit rates. This has led to a forward PE ratio that stands at about 10.1.

This perfect storm also applies to the firm’s payouts. Due to its previous history as part of Abbott Laboratories (NYSE:ABT), ABBV holds dividend aristocrat status. When a stock hikes its payout for 46 years as AbbVie has, the stock price depends heavily on keeping this streak alive.

Even better, ABBV has not made not offered a token hike in the payout merely to maintain the dividend aristocrat status. AbbVie went further, taking the payout from $2.56 per share in 2017 to $3.59 per share in 2018 to $4.28 per share this year. Approving such hikes when they face intense pressure to raise the payout every year shows a strong belief in its own future.

Considering the low P/E ratio, the profit levels, and the dividend growth amounts, ABBV becomes one of the more obvious choices among consumer stocks.

Altria Group (MO)

Few consumer stocks reflect resilience better than Altria (NYSE:MO). This year will mark 55 years since the U.S. Surgeon General released their report warning on the dangers of smoking. Amid anti-smoking campaigns, increasing tobacco taxes, and multi-billion dollar legal settlements, MO stock should have sunk into obscurity. Instead, Altria has become an unlikely success story.

Despite the hostile environment for tobacco, the company continues to find opportunity. Currently, it invests in both smokeless tobacco and alcohol. It currently holds a 10.2% stake in Anheuser Busch-InBev (NYSE:BUD), for example. Also, despite legal barriers, it has also turned to the emerging marijuana sector. In late 2018, Altria purchased a 45% stake in Cronos (NASDAQ:CRON) for $1.8 billion.

Even with the hostile business environment, MO stock manages to maintain a generous dividend. The current dividend of $3.20 per share yields almost 6.6%. Although MO does not hold dividend aristocrat status, the payout has increased in most years.

As a result, MO stock has long remained a dividend powerhouse. Those who bought the equity in 2000 and reinvested the dividends receive their original investment back every year in dividends alone. The same holds true for those who bought in 1985 and spent or invested the payouts elsewhere.

The company also looks attractive from a valuation and growth perspective. The forward P/E stands at 11.3. Moreover, analysts predict a 7.5% profit growth rate this year. Also, they expect those profit increases to remain in the high-single-digits for years to come. With its successes in related business, and its ability to maintain growth despite strong anti-tobacco sentiment, Altria should continue to stand out among consumer stocks.

Source: Shutterstock

General Mills (GIS)

Despite producing recession-proof products, General Mills (NYSE:GIS) and its direct peers have endured years of struggle. An increasing interest in fresh and organic foods has diminished demand for the packaged foods General Mills has produced. As a result, it has seen both revenue and profits steadily fall over the last few years. This has taken GIS stock to levels first seen in 2012.

However, a turnaround could occur soon. General Mills has begun to pivot to reflect consumer tastes. The company owns brands such as Cascadian Farm, Larabar, and Muir Glen that produce certified organic foods.

Such products have helped revenues and profits turns around. After years of falling numbers, analysts predict a 5.5% increase in profits next year. Revenues have already begun to improve as Wall Street expects a 7.7% increase in sales growth for this year.

Also, due to the years of decline, GIS stock trades at 12.7 forward earnings. Although this would not impress investors in a shrinking business, it begins to appear reasonable with growth returning. Also, with a five-year average P/E of 20.6, investors will likely enjoy a nice gain by waiting for the multiple to return to its long-term average.

Even better for income-oriented investors, the $1.96 per share dividend yields around 4.75%. Since they have achieved a 15-year streak of dividend increases, another payout hike will likely come this year.

Both consumers and investors have waited a long time for packaged food companies to embrace more natural foods. General Mills has finally made that move. With its attractive valuations and dividend yields, GIS stock should find a place among the more attractive high-dividend consumer stocks.

As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.


Article printed from InvestorPlace Media, https://investorplace.com/2019/01/3-consumer-stocks-growth-dividends/.

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