Defensive stocks are back in force in the market. Indeed, the biggest names in the consumer staples sector have performed well in recent months. In addition, these same securities are recognized for the quality of their dividends and are sometimes even ‘Dividend Kings‘ or ‘Dividend Aristocrats’. In this article, we will present the best dividend paying stocks in the consumer staples sector based on several criteria.
- Excellent performance in the past year
- High dividend yield
- Low Payout Ratio
- Large cap (Minimum of 10 Billion dollars market cap)
- High dividend growth in the past 5 years
What’s a good Price to cashflow ratio?
The price-to-cash-flow ratio (also known as the price-to-cash-flow or P/CF ratio), is a ratio used to compare a company’s market value to its cash flow.
For example, lets assume two stocks that operate in the same industry XYZ and ABC:
- ABC has cash flow of $10 per share (P/CF ratio 100/10=10)
- XYZ has cash flow cash flow of $5 per share (P/CF ratio 100/5=20
As you can see above, XYZ has a higher P/CF ratio. This indicates that the stock is trading at a high price but not generating enough cash flow to support the multiple. ABC with its smaller P/CF is preferred (all other things being equal).
What’s a good payout ratio?
The dividend payout ratio is the amount of dividend distributed by a company divided by the total earnings. For example, a company makes a profit of $ 100 and pays $ 40 in dividends. Its payout ratio is 40%.
If the ratio is high, the company pays almost all of its profits in dividends. There will be little money left in the coffers to innovate or expand to new markets;
It is preferable to invest in a company where the dividend payout ratio is low or medium. The reasoning is that these companies will have money set aside to invest in new projects and thus create growth;
Another variation of payout ratio (Trailing div / Earnings) is the payout ratio to cash (Div / Free cash flows). Earnings can be easily manipulated, so analysts use the payout ratio to cash to assess the safety of dividends better. The website ‘Marketbeat‘ provides the payout ratio to cash for Canadian stocks.
Best Dividend Paying Stocks – Consumer Staples sector
|GIS -General Mills||43||2.84%||2.04|
The Coca-Cola Company (NYSE:KO) been a staple investment for conservative dividend-oriented investors.
- Coca-Cola has paid dividends for 60 straight years;
- Coca-Cola has increased its dividend for more than 25 straight years;
- Offers growing dividends which is always welcome to neutralize the impact of inflation;
- The stock is probably slightly overvalued but enjoys brand and pricing power.
- On February 17, 2022, KO raised their dividend again to $0.44 from the previous $0.42 an almost 5% increase.
PepsiCo, Inc. manufactures, markets, distributes, and sells various beverages and convenient foods worldwide.
- Q1 earnings smashed Wall Street estimates across the board
- Pepsi’s dividend grew 43% in the past 5 years
- Strong financials
- Strong beverage and snack brands
General Mills, Inc. is an American manufacturer and marketer of branded consumer foods sold through retail stores.
- Continues to generate strong cashflows;
- GIS is a market leader in its segment and analysts expect the company to continue holding this position;
- General Mill’s dividend grew 13.48% in the past 5 years;
Kellogg Company, together with its subsidiaries, manufactures and markets snacks and convenience foods.
- Stellar dividend track record
- Stable and reliable cashflows
- 17 years of consecutive dividend increases
- Strang brand and pricing power which comes in handy in an inflationary environment
- General Mill’s dividend grew 13.24% in the past 5 years