The U.S. economy grew at a faster-than-anticipated pace in the second quarter. U.S. consumers remain in good shape despite persistent inflation, as unemployment remains near historic lows. This means consumer staples stocks have a supportive environment to operate in.
This group offers generally consumable products that are low-cost, and typically have some sort of necessity for consumers. Plus, companies with top brands hold pricing power, which helps boost revenue growth.
These three consumer staples stocks have stable earnings and strong dividend yields above 4%.
A Healthy Choice for Dividends
Conagra Brands (CAG) is a packaged foods company with well-known brands like Slim Jim, Healthy Choice, Marie Callender's, Orville Redenbacher's, Reddi Whip, Birds Eye, Vlasic, Hunt's, and PAM.
On July 13, Conagra reported fourth-quarter FY 2023 results for the period ending May 28, 2023 (Conagra's fiscal year ends the last Sunday in May). For the quarter, net sales increased 2.2% to $3.0 billion, due to a 9.9% improvement in price/mix, offset by a 7.7% decline in volume. Adjusted net income decreased 5.1% to $366 million, or $0.62 per share. For FY 2023, net sales rose 6.4% to $12.3 billion, and adjusted EPS increased 17.4% to $2.77.
Conagra has accelerated its dividend growth in recent years. After paying the same $0.2125 quarterly payout for 13 consecutive quarters, Conagra increased its dividend 29.4% in 2020, 13.6% in 2021, 5.6% in 2022, and 6.1% in 2023 to $0.35 per quarter.
From 2019 to 2022, Conagra saw its earnings rise due to the Covid-19 pandemic, with adjusted EPS jumping 13% in fiscal 2020 and 16% in fiscal 2021. The dividend was increased significantly to reflect these results. While results were down in fiscal 2022, earnings surpassed their previous peak in FY 2023.
For the upcoming fiscal year, Conagra has an expected dividend payout ratio of 51% which gives the dividend sufficient coverage, with room for continued increases.
CAG stock yields 4.2%.
Your Income 'Ketchup' Plan
Kraft-Heinz (KHC) is a processed food and beverages company which owns a product portfolio that includes food products such as condiments, sauces, cheese & dairy, frozen & chilled meals, and infant diet & nutrition. The company was created in 2015 in a merger between Kraft Food Group and H. J. Heinz Company, orchestrated by Warren Buffett's Berkshire Hathaway and 3G Capital.
The Kraft-Heinz Company reported its first-quarter earnings results on May 3. The company reported that its revenues totaled $6.5 billion during the quarter, which was up 7% compared to the revenues that Kraft-Heinz generated during the previous year's period. This was slightly better than what the analyst community had expected. Kraft-Heinz' organic sales were up by 9%. Organic sales growth was primarily possible thanks to price increases.
Kraft-Heinz generated EPS of $0.68 during the first quarter, which easily beat the consensus estimate. EPS were up 13% versus the previous year's quarter, thanks primarily due to Kraft-Heinz' compelling revenue growth. Kraft-Heinz' management stated that they see organic net sales rising at a 4%-6% rate in 2023, while management is forecasting EPS to come in between $2.83 and $2.91 during the current year. EPS are expected to grow slightly this year.
Kraft-Heinz has several avenues for growth in the future. The first factor is international expansion. Market penetration in many emerging countries is not very high. These markets are huge, and they are growing relatively quickly. Due to steadily rising disposable incomes in countries such as China and India, more consumers have rising purchasing power.
Another EPS growth catalyst is margin expansion, as Kraft-Heinz' management is experienced in cutting costs. We believe that margins will remain high, and they could rise further over the coming years. Finally, Kraft-Heinz should benefit from debt reduction that results in declining interest expenses.
Kraft-Heinz' brands are strong and recognized by most consumers, and demand for food is not cyclical or dependent on economic conditions. Kraft-Heinz therefore should be able to remain profitable in economic downturns, as do most consumer staples companies. Kraft-Heinz' brands function as a competitive advantage.
With a forward dividend payout ratio of 56%, the current dividend payout is secure, with room for growth.
The stock has a current dividend yield of 4.4%.
A King With Universal Appeal
Universal Corp. (UVV) is the world's largest leaf tobacco exporter and importer. The company is the wholesale purchaser and processor of tobacco that operates between farms and the companies that manufacture cigarettes, pipe tobacco, and cigars. Universal Corp. was founded in 1886 and is headquartered in Richmond, Virginia.
With 52 years of dividend increases, Universal is a Dividend King.
Universal reported its fourth quarter (fiscal 2023) earnings results on May 24. The company generated revenues of $690 million during the quarter, which was 6% more than the revenues that Universal Corporation generated during the previous year's period. Management explains that revenues were up due to a stronger product mix primarily. Universal's gross margin was down slightly compared to the previous year's period, but that headwind was offset by higher revenues, which is why operating income still was up year over year. Universal's adjusted earnings-per-share totaled $0.97 during the quarter.
As the leader in a declining industry, we do not expect the company to deliver strong business growth in the future. But Universal's EPS could still rise in future years. The shares trade at a moderate valuation based on the earnings and cash flows. Universal also does not need to invest large amounts of money into its business, as the industry is not experiencing any meaningful growth. This gives Universal the ability to utilize a substantial amount of its free cash flows for share repurchases.
Through a declining share count, Universal could be able to deliver some EPS growth during the coming years, at least enough to raise the dividend by small amounts to continue its streak. With a dividend payout ratio of 64% for 2023, the dividend appears secure.
UVV stock currently yields 6.5%.
