June 23, 2022- Colgate-Palmolive (NYSE: CL) and Procter & Gamble (NYSE: PG)
These dividend aristocrats could be the two best stocks to buy now.
Stocks couldn’t maintain Tuesday’s (June 21, 2022) momentum but ended the day (June 22, 2022) with little change. The Dow fell 0.08%, the S&P 0.09%, and the Nasdaq 0.37%. While stocks have been considerably more stable this week, recession concerns remain. Jay Powell seemed to acknowledge so. Now is an opportune time to turn to dividend payers and give your portfolio some sturdy cash flows. Dividend aristocrats have a proven track record, no matter the economic situation. That’s why companies like Colgate-Palmolive (NYSE: CL) and Procter & Gamble (NYSE: PG) are some of the best stocks to buy now.
To be considered a dividend aristocrat, you must have over 50 years of consecutive dividend hikes. Needless to say, it’s not easy to do this. A lot can happen in 50 years. Companies like CL and PG, which run this way, have proven abilities to navigate stormy waters and provide genuine value.
Colgate-Palmolive is one of the best stocks to buy now because it boasts 60 years of consecutive dividend increases. It is an international consumer products giant that recently received the distinction of being “a high-quality stock for the times,” according to Argus analyst Christopher Graja. He also maintained a BUY rating and a $90 price target.
Then there’s Procter & Gamble, a prominent household product industry player that’s hiked dividends for 65 straight years. Moreover, based on its cash flow, balance sheet, and earnings outlook, it could ramp up its dividend growth even more. A recent $170.00 price target from Evercore also adds more upside to the story.
Want more reasons why these two dividend kings are the best stocks to buy now? Read on to find out.
Colgate-Palmolive (NYSE: CL)
Six decades of dividend growth, sticky industry leadership, and rock-solid fundamentals point to 15+% more room to run.
Colgate-Palmolive is one of the best stocks to buy now if you’re looking for consistent dividend growth. It currently boasts a 2.4% dividend yield, but as mentioned, the Company has raised dividends for 60 consecutive years. That’s the real kicker here.
Just look at what the Company has done in the last five fiscal years alone- pandemic and all.
Source: Colgate-Palmolive Investor Relations
If CL’s fundamentals and positioning in consumer goods hold up, it could grow another 60 years. For now, it’s projected to grow 4.4% at a 5-year CAGR of 2.9%.
To grow dividends for 60 straight years takes a lot of skill and shrewd management. Several factors are at play here that position Colgate-Palmolive for continued stability. Even in the face of recession risks.
Its Industry Leadership is Ironclad
Colgate’s Q1 earnings report was nothing special and largely met expectations. However, despite supply chain woes and increasing costs of raw materials, the Company still saw net sales increase by 1.5% and organic sales rise by 4.0%.
Moreover, Colgate’s leadership in toothpaste continued as its year-to-date global market share sits at 39.2%. Furthermore, its year-to-date market share in manual toothbrushes stands at 30.7%.
Want some figures as to why this is such a big deal?
The global toothpaste market could reach $29.3 billion by 2027 at a 5.8% CAGR. In addition, the global manual toothbrush market was $4.4 billion in 2018 and could expand to $7.54 billion by 2026 at a 6.9% CAGR.
Is this a sexy tech sector? No. This is a stable, sticky, and value sector. Colgate-Palmolive has a sizable market share that won’t go anywhere. After all, everybody needs to brush their teeth no matter the economic situation.
Strong Margins Point to Continued Strength
CL’s 14.0% ROA and 23.7% unlevered ROA show that the Company can turn a hefty profit on its assets.
Its 59.0% gross margin is fantastic and shows that net profits take up a decent chunk of its revenue. Its 21.3% operating margin is nothing to scoff at either.
However, it’s the Company’s 701.2% ROCE that turns heads. ROCE represents the percentage return a company generates on the money invested by shareholders. Based on the Company’s net income divided by its average common equity since 2017, this is extraordinary.
With Colgate-Palmolive’s net income growth forecast at 18.2% and expected to average 10.1% over the next five fiscal years, Colgate’s ROCE could remain substantial.
CL’s Stock Has Some Bullish Indicators and Near-Term Outperformance
In the last three months, the CL stock is actually up over 5%. That compares very favorably to the broader market and speaks volumes about this Company’s strength.
Indicators such as its 20 Day Moving Average, 100 Day Moving Average, and 50 – 100 Day MACD Oscillator flash BUY signals, too. So it remains very plausible that CL could continue outperforming.
“A high-quality stock for the times” with 15.52% of potential upside.
Argus analyst Christopher Graja recently called Colgate “a high-quality stock for the times”. He maintained a BUY rating with a $90 price target. That represents a 15.52% upside from June 22, 2022’s $77.91 closing price. Outside of being dividend royalty, he believes that the Company’s pricing power will be enhanced by product innovation and cost-control efforts more than capable of offsetting inflation.
15 Wall Street analysts in total, over the last 3 months, offered a 12-month price target for CL. The average price target is $82.14, with a high forecast of $95.00 and a low forecast of $71.00. The average price target represents a 5.43% upside from $77.91.
CL’s year-to-date low and high are $72.20 and $85.61, respectively.
Procter & Gamble (NYSE: PG)
Days ago, Evercore’s gave this household goods and consumer products giant a 22.75% upside.
Look no further than Procter & Gamble if you want a dividend aristocrat.
A PG logo would likely be there if the words “dividend aristocrat” were in the dictionary. That’s because it’s hiked its dividend for 65 straight years and boasts a dividend yield of 2.6%.
Perhaps that’s why Finbox projects its dividend to grow another 15.5% at a 5.4% 5-year CAGR.
PG was founded in 1837 and is an immovable force in household products and branded consumer packaged goods. Yet beyond its brand equity and historical positioning, PG has many other catalysts working in its favor as a dividend king and one of the best stocks to buy now.
PG Raised Its Guidance and Crushed Earnings and Revenue Estimates Last Quarter
At the end of April, Procter & Gamble announced its Q3 2022 earnings. Adjusted EPS came in at $1.33 vs. $1.29 expected, while revenue came in at $19.38 billion vs. $18.73 billion expected.
Needless to say, both top and bottom-line figures easily beat estimates. This also marked the fifth consecutive quarter PG beat analyst forecasts.
Year-over-year, net sales rose 7%, organic sales advanced 10%, and both diluted and core EPS increased 6%.
While PG acknowledged economic challenges such as elevated commodity and freight costs, price hikes and productivity savings have helped offset inflation.
PG, as a result, raised its full-year 2022 revenue growth forecast and guidance. Previously, it projected revenue to grow by 3-4%. Now it’s in the 4-5% range. It also increased organic sales projections from 4-5% to 6-7%.
PG’s Brand Name and Fundamentals Offers Outstanding Value
PG has a stranglehold on five specific segments in the household goods and consumer products sector- Beauty, Grooming, Health Care, Fabric & Home Care, and Baby, Feminine & Family Care.
Maybe you’re familiar with some of the Company’s best-known brands:
- Old Spice
- Head & Shoulders
- Herbal Essences
So with the Company trading roughly 16.24% below its 2022 high of $165.35, it’s clear this aristocrat trades at a bargain price.
PG’s margins paint an even stronger fundamental case of a company positioned to handle inflation.
The fact that its cash flows can sufficiently cover interest payments don’t hurt its cause either.
Evercore’s Latest Price Target Gives PG a 22.75% Upside
Over the last 3 months, 14 Wall Street analysts offered 12-month price targets for PG. PG’s average price target currently sits at $167.29, with a high forecast of $185.00 and a low forecast of $145.00. The average price target represents a 20.79% upside from June 22, 2022’s closing price of $138.50.
However, there’s a chance this average price target starts ticking up.
Evercore was the latest analyst to set a PG price target on June 20, 2022. The firm placed a $170.00 target on the company, giving it a 22.75% upside from June 22, 2022’s close.
We’ll see which analysts are next to follow.
PG’s year-to-date low and high are $129.50 and $165.35, respectively.