For conservative investors who are looking for reliable income streams, the best consumer goods stocks to buy are the dividend aristocrats within that sector. These are the stocks of consumer goods companies that have raised their dividends for at least 25 consecutive years.
Of course, the fact that these companies have managed to raise their payouts for so many years shows that they are both very well-managed and at least somewhat resistant to recessions. So these reliable consumer-goods stocks are also very good names to buy for those investors who (unlike me) believe that a recession is beginning or will kick off soon.
Also noteworthy is that I believe that all three of these consumer stocks are undervalued at this point.
Target (TGT)
Target (NYSE:TGT) has raised its dividend for an incredible 51 consecutive years and currently has a significant dividend yield of 2.8%.
Although Target is not a consumer goods company in the traditional sense, it does, of course, sell a tremendous number of consumer goods. So those looking for a company that specializes in consumer goods can and should consider buying TGT stock.
In recent quarters, Target has had trouble managing its inventories as supply chains improved and consumers started spending more of their funds on experiences than usual, causing them to reduce their purchases of goods.
But the retailer is making significant progress in lowering its inventory levels, and I have theorized that at some point this year, consumer spending on goods will normalize. Supporting my thesis, research firm Canalys expects smartphone sales to climb during the remainder of 2023.
Moreover, Target is expected to benefit from Bed Bath & Beyond’s bankruptcy.
Target’s enterprise value/revenue ratio of 0.87x is attractive, and its enterprise value/EBITDA ratio of 14.4x is also alluring, making it one of the best undervalued consumer goods stocks to buy.
Brown-Forman (BF-B)
Liquor maker Brown-Forman (NYSE:BF-B), which owns the popular Jack Daniels brand, has raised its dividend for 38 consecutive years. It has a significant dividend yield of 1.3%.
In the first nine months of its fiscal year, the company’s net sales, excluding acquisitions and divestments, jumped 12%, while its operating income climbed 9% excluding those factors.
“Even as trends begin to normalize, we believe our business will remain robust given the premiumization of our portfolio, the health of our brands, and the resolve of our people,” said CEO Lawson Whiting.
For all of its current fiscal year, Brown-Forman expects its organic operating income to climb around 9%.
On the company’s Q3 earnings call, Whiting reported that Jack Daniel’s Tennessee Whiskey was generating strong sales growth overseas. And going forward, the company is likely to benefit from the economic rebounds of China and the European Union.
Analysts, on average expects the company’s earnings per share to climb to $2.05 next year from $1.67 this year. Given that strong growth, the company’s forward price-to-earnings ratio of 32x is attractive.
McCormick & Company (MKC)
A spice maker, McCormick & Company (NYSE:MKC) has increased its dividend for 37 consecutive years and has a significant dividend yield of 1.8%. The company should get a significant lift from the rapid increase in recent years of restaurants’ prices. That’s because, with many families unable to eat away from home as much, they will cook more and increase their utilization of MKC’s spices.
In its fiscal first quarter, MCK’s top line climbed 2.6% year over year to $1.56 billion, coming in slightly above analysts’ average estimate. Excluding currency fluctuations, its sales increased 5% YOY and its operating income increased 2% YOY.
The company expects the growth of its consumer unit to accelerate starting in the current quarter as it “lap[s] the exit of our Consumer business in Russia and the impact of last year’s COVID-related shutdowns in China.”
Analysts, on average, expects the company’s EPS to climb to $2.89 next year from $2.63 this year. Given that fairly rapid growth, the company’s forward price-to-earnings ratio of 32.5x is attractive.
On the date of publication, Larry Ramer did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
