Inflation in the U.S. is turning out to be a lot higher and more persistent than originally expected. Earlier this year, it seemed like the majority of market analysts were telling everyone the same thing: inflation will be minor, temporary and mostly due to supply chain bottlenecks.
However, the bottlenecks are now expected to last for years to come, and the influx of money printed by the government to mitigate the Covid-19 crisis is making its way through the economy, causing the prices of everything to skyrocket. Wages need to keep up with this inflation as well, resulting in increased labor costs.
In this rapidly shifting environment, it is all too easy for companies to fail to adapt. The companies that have the biggest advantage in this situation are those with strong brands and products that customers consider to be essential to their daily lives, as such companies have enough pricing power to keep up with inflation. Companies that can’t raise prices without losing customers, on the other hand, are destined for failure.
With this in mind, let’s take a look at five consumer defensive stocks with strong brand names and high dividend yields that could provide some stability and protection against inflation. These may not be growth stocks, but they could be a safe place to park some capital and earn a steady dividend for those worried about inflation.
General Mills Inc.
General Mills Inc. (GIS, Financial) is an American multinational consumer staple foods manufacturer based in Minneapolis, Minnesota. It owns popular brands such as Betty Crocker, Cheerios, Yoplait, Pillsbury and Nature Valley.
On Oct. 13, shares of General Mills traded around $61.93 apiece for a market cap of $37.49 billion and a price-earnings ratio of 16.44. The GuruFocus Value chart rates the stock as fairly valued.
The dividend yield stands at 3.29%, which is higher than 75% of industry peers and well covered by the free cash flow yield of 5.90%. General Mills and its predecessor company have been paying dividends uninterrupted for 122 years.
The company has a financial strength rating of 4 out of 10 and a profitability rating of 7 out of 10. With a cash-debt ratio of 0.06, General Mills has high debt for a consumer goods company, but the Piotroski F-Score of 7 out of 9 is typical of a financially stable company. With a return on invested capital (ROIC) that is consistently higher than the weighted average cost of capital (WACC), the company is creating value for shareholders.
Newell Brands Inc.
Based in New York, Newell Brands Inc. (NWL, Financial) is a worldwide manufacturer and distributor of consumer and commercial products, with brand names including Rubbermaid, Ball, Crock Pot, Coleman and Elmer’s.
On Oct. 13, shares of Newell Brands traded around $22.28 apiece for a market cap of $9.51 billion and a price-earnings ratio of 13.24. The GuruFocus Value chart rates the stock as modestly overvalued.
The dividend yield stands at 4.11%, which is higher than 84% of industry peers and well covered by the free cash flow yield of 11.62%. Newell brands has been paying dividends since 1986, and although it cut its dividend significantly in 2009, the per-share distribution has since been raised above 2008 levels.
The company has a financial strength rating of 4 out of 10 and a profitability rating of 6 out of 10. The Altman Z-Score of 1.27 indicates the company could be in danger of bankruptcy, though the Piotroski F-Score of 7 out of 9 implies financial stability. The ROIC isn’t always higher than the WACC, so it seems that the company sometimes struggles to grow in a profitable manner.
Kellogg Co
Michigan-based Kellogg Co (K, Financial), operating under the Kellogg’s name, is one of the world’s largest producers of cereals and other convenience food. It owns the Pringles, Cheese-It, Austin, Pop-Tarts and Eggo brand names, among others.
On Oct. 13, shares of Kellogg traded around $61.66 apiece for a market cap of $21.03 billion and a price-earnings ratio of 16.35. The GuruFocus Value chart rates the stock as fairly valued.
The dividend yield stands at 3.72%, which is higher than 78% of industry peers and well covered by the free cash flow yield of 5.24%. Kellogg has been paying dividends since 1957 and has a dividend growth streak of 16 years.
The company has a financial strength rating of 4 out of 10 and a profitability rating of 7 out of 10. The cash-debt ratio of 0.05 is low for the industry, but the Altman Z-Score of 2.61 shows the company is not in danger of bankruptcy. The ROIC is consistently higher than the WACC, so the company is creating value for shareholders.
Conagra Brands Inc.
Conagra Brands Inc. (CAG, Financial) is an American consumer packaged goods company based in Chicago, Illinois. It primarily makes and sells products for supermarkets, restaurants and food service establishments, and its brands include Hunt’s, Birds Eye, PAM, Marie Callender’s and Healthy Choice.
On Oct. 13, shares of Conagra Brands traded around $33.14 apiece for a market cap of $15.90 billion and a price-earnings ratio of 13.39. The GuruFocus Value chart rates the stock as fairly valued.
The dividend yield stands at 3.42%, which is higher than 75% of industry peers and lower than the free cash flow yield of 4.99%. Conagra Brands has been paying dividends since 1986, and the last time it cut its dividend was in mid-2017.
The company has a financial strength rating of 4 out of 10 and a profitability rating of 7 out of 10. The cash-debt ratio of 0.01 and Altman Z-Score of 1.82 show the company could be in danger of bankruptcy and may need to cut its dividend if business gets tough. The company struggles to create value for shareholders in some years, with the ROIC not always coming out higher than the WACC.
Unilever PLC
Headquartered in London, Unilever PLC (UL, Financial) is a British multinational manufacturer and seller of consumer products such as food, vitamins, home care, beauty and personal care products. Its brands include Ben & Jerry’s, Dove, Surf, Seventh Generation and Lipton.
On Oct. 13, shares of Unilever traded around $53 apiece for a market cap of $136.72 billion and a price-earnings ratio of 21.66. The GuruFocus Value chart rates the stock as modestly undervalued.
The dividend yield stands at 3.79%, which is higher than 80% of industry peers and well covered by the free cash flow yield of 6.59%. Unilever has been paying dividends since around 1984, though payouts were fairly inconsistent until the 2009 restructuring streamlined things. The last time the dividend was cut was in 2016.
The company has a financial strength rating of 6 out of 10 and a profitability rating of 8 out of 10. The Piotroski F-Score of 7 out of 9 and Altman Z-Score of 2.88 show the financial situation is very healthy. In recent years, ROIC has been growing while WACC has been decreasing, meaning the company is becoming more efficient in terms of creating value.
