As Other Dividends Tumble, Consumer Brands Offer Sweet Payouts
10 April 2009 - 1:04AM
Dow Jones News
Makers of consumer staples like garbage bags, soap and soda have
been sweetening their dividends during the recession and are
expected to continue boosting their payouts in coming months, a
striking contrast with the cuts made by many other industries.
Coca-Cola Co. (KO) and Kimberly-Clark Corp. (KMB) are two large
consumer brands that raised their dividends recently. There are
likely to be more in the pipeline. Investors and analysts are
counting on hikes from companies ranging from Procter & Gamble
Co. (PG) to Clorox Co. (CLX).
The consumer staples sector has "far more opportunity for
dividend increases than other sectors right now," says Rick Helm,
manager of the Cohen & Steers Dividend Value Fund. Consumer
staples are generally dividend payers, and their cash flows have
stayed healthy even in the recession.
Procter & Gamble, maker of Tide detergent and Pringles
chips, could raise its quarterly dividend by 10% to 44 cents a
share in coming weeks, says Goldman Sachs analyst Andrew
Sawyer.
Clorox typically makes a dividend announcement in May and this
year's hike is likely to be in the double-digit range and could
bring the payout to just north of 50 cents, says Sawyer. A Clorox
spokesman declined to comment on future payments, but said the
company is committed to its dividend.
These increases would come at a time when many large companies -
including Alcoa Inc. (AA) and General Electric Co. (GE) - have
slashed their payouts. Financial companies have seen some of the
worst declines, and even real-estate investment trusts, which are
structured as dividend payers have been cutting back in this
area.
Consumer manufacturers haven't been immune to the sharp slide in
spending. Their sales have been hurt by competition from cheaper
private-label brands and retailer inventory cutbacks, even as their
stocks have been beaten down on concerns they might have to roll
back prices for their products. But consumer makers continue to
generate strong cash flows because they sell daily necessities.
Helm warns that dividend increases in the consumer staples
sector may not be as robust as in previous years, but he still
expects the payouts for the sector to grow roughly 8%.
Consumers "may not be going out and buying beautiful dresses and
jewellery, but they've got to eat," says Tom Cameron, co-manager of
Rising Dividend Growth Fund. Cameron says he is upbeat on PepsiCo
Inc. (PEP) and Nestle SA. (NSRGY) because both have raised their
dividends at a steady clip for years and are likely to keep doing
so.
Many investors look at dividends as not just a steady source of
income but also as an indicator of a company's overall health. And
consumer product makers have a long history of raising their
dividends.
There are several consumer staples companies on Standard &
Poor's "dividend aristocrat" list of companies that have 25
consecutive years of increased payouts behind them. These
aristocrats include Clorox, Coca-Cola, Kimberly Clark, PepsiCo, and
Procter & Gamble.
According to investment management firm Fayez Sarofim, Altria
Group Inc. (MO), Coke, Nestle, Pepsi, Philip Morris International
and P&G together paid out dividends worth $61 billion between
the beginning of 2006 and the end of 2008. These companies may be
able to keep that trend alive.
Cohen & Steer's Helm says cigarette maker Philip Morris
International Inc. (PM) is likely to raise its dividend to 58 cents
from 54 in the third quarter. Altria could move its dividend upward
to 35 cents from 32, he says. The two tobacco companies didn't
comment.
Altria recently said it was putting its buyback program on hold,
but Helm isn't put off because he believes curtailing buybacks can
sometimes ensure that a company has cash on hand for its
dividend.
Some staples companies have so far managed to accompany
dividends payments with stock repurchases. Procter & Gamble,
which declined to comment on future dividends, had repurchased $5.2
billion in stock by the end of its second quarter ended December,
with expected purchases of $8 billion to $10 billion for the full
fiscal year.
-Anjali Cordeiro, Dow Jones Newswires; 201-938-2408;
anjali.cordeiro@dowjones.com