Household product stocks have faced a challenge unlike any other challenge dealt with in previous decades. By and large, these companies produce products necessary for everyday life. At the same time, many also stand as products that other companies could easily copy. In the heyday of brick-and-mortar stores, they stood out above competitors by dominating shelf space at major stores. They also own familiar brands which have fostered consumer loyalty over the decades.
Now, with the advent of e-commerce, the shelf space advantage has disappeared. This has allowed small competitors to gain a level of recognition difficult to obtain in previous decades. The better-known consumer brands have not seen a mass abandonment. However, the larger household product stocks have faced more difficulties with revenue growth.
Still, despite these challenges, many of these companies continue to serve as great stocks to buy. This has become especially true when the company focuses more on health-related products. Given the business and demographic trends, these household product stocks to buy should serve investors well in the months and years to come:
Johnson & Johnson (JNJ)
Johnson & Johnson (NYSE:JNJ) has long stood out not only as one of the most important household product stocks, but also as one of the most respected names in American business in general. Its products have long served as a staple in most American households. Despite its reputation, the company also owns a pharmaceutical division and a medical devices division. These two divisions combined make up about 80% of the company’s revenues.
JNJ stock stands as one of the most stable companies anywhere. It has become one of the few companies to hold a AAA credit rating. It also stands not only as a dividend aristocrat, but as a dividend king as well. The company has increased its annual dividend payout for 55 consecutive years. The annual dividend has now reached $3.60 per share, a yield of just under 2.6%.
Decades of this type of growth has turned J&J into a $373 billion company. Despite its size, investors should still consider it, and not just for its stable, 2.6% dividend yield. With $8.17 per share of expected earnings this year, the stock trades at a price-to-earnings ratio of about 17. This also represents a profit growth rate of 11.9% for this year. Over the next five years, analysts expect average annual growth of almost 7.8%.
These kinds of numbers will not attract investors interested in high-growth startups. However, investors wanting a steady, growing income stream should look at JNJ stock. With its AAA credit rating and 55-year track record of dividend increases, few household product stocks will stand above Johnson & Johnson.
Kimberly-Clark (KMB)
Like most household product stocks, Kimberly-Clark (NYSE:KMB) has become best known for its products. Brands such as Huggies, Kleenex and Cottonelle have defined KMB stock for decades. The company also owns K-C Professional, which provides safety and sanitary products for offices. It also derives just under half of its sales outside of the United States.
Like many of its peers, KMB stock has become a dividend aristocrat. It has now increased its dividend annually for the last 45 years. Its annual payout of $4 per share takes its yield to just over 3.6%. Profit growth rates also remain modest but stable. Analysts predict profits will grow by 6.6% this year. They also expect average annual growth of 5.6% per year over the next five years.
At current prices, it also supports a P/E ratio of about 16.6. This compares well to its peers, although its market cap indicates more room to grow. The market cap for KMB stock comes in at just over $38 billion. This remains about one-tenth the size of Johnson & Johnson and much smaller than its most direct peer, Procter & Gamble (NYSE:PG) at $217 billion. KMB stock also pays a higher dividend yield and enjoys a lower P/E than Procter & Gamble.
KMB may not stand as one of the better-known household product stocks. However, with its ownership of many popular brands, comparatively smaller size and dividend aristocrat status, KMB stock offers stability, dividend growth and the room to grow long term.
Prestige Consumer Healthcare (PBH)
Few consumers or even stock observers will recognize Prestige Consumer Healthcare (NYSE:PBH) by its corporate name. Also, having formed by a merger in 1996, it remains a young company compared to its largest peers and the other stocks to buy on this list. However, many of these same consumers know and use Prestige products such as Chloraseptic, Clear Eyes or Compound W.
Prestige also owns household cleaning brands such as Comet and Spic and Span. However, amid struggles in this sector, it has put its household cleaning business up for sale to focus on its health segment. Demographics may support this decision. As more baby-boomers retire, demand for healthcare-related products has increased. Hence, this move will likely serve the company well.
Due to its youth, PBH does not have an extensive history of dividend payments. However, it just paid a quarterly dividend of 47.5 cents per share. When extrapolated to an annual dividend, this amounts to $1.90 per share — a yield of just over 5%.
Also, despite its high yield, PBH remains a reasonably valued stock. Its P/E comes in at about 13.2. The stock’s profit growth compares well to its peers. Analysts forecast a profit growth rate of 10.9% for this year. Over the next five years, they believe that will settle into an average annual growth rate of 6%.
Investors should note its small size. The market cap of PBH stands at only about $1.95 billion. However, this leaves the company with a lot of room to increase its size. The fact that it’s pivoting to focus solely on healthcare should boost this trend. With a high dividend yield, low P/E and commitment to growth, investors should achieve solid returns in PBH stock for years to come.
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.
