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Why Investors Aren’t Generous on PG, KMB, CL, and CLX

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Why Investors Aren’t Generous on PG, KMB, CL, and CLX PART 1 OF 7

PG, KMB, CL, and CLX: What’s behind Rising Dividend Yields?

Stock price slump is driving yields

The dividend yields of CPG (consumer packaged goods) manufacturers are inching up. For instance, Procter & Gamble (PG) and Kimberly-Clark (KMB) have current dividend yields of close to 4% based on their closing prices on May 15.

Procter & Gamble, Kimberly-Clark, Colgate-Palmolive (CL), and Clorox (CLX) are dividend aristocrats, which means they’ve consistently raised their dividends for more than 25 years. However, it’s not only dividend growth that’s driving yields higher. Slumps in these stocks’ prices are also resulting in higher yields.

PG, KMB, CL, and CLX: What’s behind Rising Dividend Yields?

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Soft category growth and increased competition from private label products and local players are hurting the organic sales growths of these companies. Tight inventory management by retailers has also acted as a dent. Further, inflation in commodities and logistics costs and increased promotional spending to drive volumes have also been taking a toll on margins and stock prices.

As of May 15, Procter & Gamble, Clorox, Kimberly-Clark, and Colgate-Palmolive stocks offered dividend yields of 3.9%, 3.3%, 3.9%, and 2.7%, respectively.

Valuation remains low

Besides offering higher dividend yields, the shares of these CPG companies are also trading at lower valuation multiples than their historical forward PEs (price-to-earnings multiple). As of May 15, KMB, PG, CL, and CLX stock were trading at favorable forward PEs of 14.9x, 16.8x, 19.1x, and 19.5x, respectively, compared to their four-year historical average multiples of 18.9x, 20.5x, 23.2x, and 23.0x, respectively.

Despite these stocks’ rising dividend yields and low valuations, investors don’t find them attractive, as near-term headwinds are likely to restrict their upsides. In this series, we’ll focus on the near-term challenges plaguing CPG companies.

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