The coronavirus is forcing many companies to slash or discontinue payouts altogether. In the second quarter of 2020, dividend payments fell to their lowest level in more than a decade. However, there’s good reason to believe that the economy is going to keep recovering. The Fed has committed to keeping rates at zero until the end of next year. In addition to the “Fed put”, we now have a “fiscal put”. If current polling holds, it’s likely that Democrats take control of Congress and the Presidency which increases the chances of more aggressive fiscal stimulus.
For investors, a dividend makes a company’s stock more attractive especially during times of market turbulence. Dividends are a way for companies to return capital to shareholders, and companies typically pay dividends from the free cash flow that their businesses generate. Hence, strong fundamentals along with a pandemic-ready business model and robust financials helped some companies sustain the market downturns and enhance shareholder returns.
Procter & Gamble Company (PG), UnitedHealth Group Incorporated (UNH), PPG Industries, Inc. (PPG), and The Clorox Company (CLX) are the top four stocks that have raised their dividends amid the crisis and are expected to return more capital to their shareholders over the coming year through dividends.
Procter & Gamble Company (PG)
PG manufactures and sells branded consumer packaged goods with operations in approximately 70 countries worldwide. PG is a consumer staples company that has been around for 182 years. The company operates through six segments – Beauty, Fabric & Home Care, Baby, Feminine & Family Care, Grooming, and Health Care.
Dividend raises have become rarer in the consumer sector amid the pandemic. However, the company has been paying uninterrupted dividends for 130 years and has raised its payout in each of the last 64 years. PG’s annual dividend yield stands at 2.22%. The company increased its dividend by 6% in April to $0.79 despite the pandemic. The most recent dividend declared by the company was in July. Over the last ten years, its dividend has grown at a CAGR of 5.6%.
PG has recently announced results for its fiscal first quarter ended September 2020. The company reported a free cash flow of $3.9 billion, remaining relatively stable over the previous year despite the adjusted free cash flow productivity being 95%. It returned $2.03 billion back to its shareholders in the form of dividends. Net sales were $19.3 billion, increasing 9% year-over-year, primarily driven by a 7% increase in organic shipment volume.
EPS for the last reported quarter came in at $1.63, growing 20% year-over-year. PG has recently commenced a debt tender offer worth $1.5 billion to improve its liquidity. The fact that PG delivered higher sales and profits in this extraordinary environment should be reassuring for its dividend investors. The street expects the company’s EPS to grow 7% next year.
How does PG stack up for the POWR Ratings?
A for Trade Grade
A for Buy & Hold Grade
A for Peer Grade
A for Industry Rank
A for Overall POWR Rating.
You can’t ask for better. The stock is also ranked #1 out of 34 stocks in the Consumer Goods industry.
UnitedHealth Group Incorporated (UNH)
UNH operates as a diversified health care company in the United States. It operates through four segments – UnitedHealthcare, OptumHealth, OptumInsight, and OptumRx. It has recently collaborated with Morehouse School of Medicine to help expand COVID-19 research and health equity for individuals with Sickle Cell.
UNH has been uniformly paying dividends every quarter for the past decade. During the past ten years, the average dividends per share growth rate for UNH was 63.7% per year. The company increased its payout during the second quarter by 15.7% to $1.25. The most recent dividend declared by the company is for its third quarter ended September 2020. The annual dividend cumulates to $5 translating into a dividend yield of 1.55%.
UNH generated a free cash flow of $2.57 billion in its last reported quarter, declining 5% from the comparable quarter last year. However, the company has returned $3.4 billion so far this year back to its shareholders in the form of dividends. The company posted a top-line of $50.9 billion, an increase of 7.3% from the year-ago quarter, primarily due to growth at Optum and the UnitedHealthcare public-sector and senior benefits businesses.
EPS for the quarter came in $3.3, declining 10%, impacted by modestly lower care patterns as quarterly medical care ratio came in at 81.9% compared to 82.4% last year. However, UNH has recently introduced a new health plan offering lower premiums and a high-performing network in Kansas City. Moreover, it expanded its shared portfolio with Canopy Health, an accountable care network, for delivering a new low-cost health care plan for consumers in Northern California. Hence, the market expects EPS to grow 11% next year, and consequently, the dividend payout is also expected to rise.
It’s no surprise that UNH is rated “Strong Buy” in our POWR Ratings system. It also has an “A” for Trade Grade and Buy & Hold Grade, and a “B” for Peer Grade and Industry Rank. It is ranked #1 out of 9 stocks in the Medical – Health Insurance industry.
PPG Industries, Inc. (PPG)
PPG manufactures and delivers paints, coatings, specialty materials, and glass products. The company has been operating for more than 135 years now in more than 70 countries worldwide. The company primarily functions through two segments – Performance Coatings and Industrial Coatings.
The company has been consistently paying dividends since 1899 and is increasing its payout each year over the last 48 years. Its dividend has grown at a CAGR of 8.6% over the last five years. The most recent dividend declared by the company was $0.54 for the third quarter ended September 2020, payable in December, increasing its payout by 5.9% year-over-year amid the pandemic. While the four-year average dividend yield for PPG is 1.70%, the current annual dividend of $2.16 translates into a 1.60% yield.
PPG reported $800 million as cash generated from operations for the third quarter ended September 2020, increasing 1.4% year-over-year. However, net sales of $3.7 billion were down 4% compared to the prior year despite sales volume recovery and ongoing cost management actions. EPS for the quarter came in at $1.87, rising 20.6% year-over-year, driven by strong aggregate segment operating margins.
PPG received a $2.2 million funding from the US Department of Energy (DOE) in September for research to study coatings applications in automotive lithium-ion batteries. It also received funding in August to initiate research aimed at developing energy-efficient coatings systems for the automotive industry. Moreover, PPG is likely to benefit from architectural coatings businesses in European and North American markets. Hence, analysts expect next year’s EPS to rise by 16.8% year-over-year.
PPG is rated “Strong Buy” in our POWR Ratings system, consistent with its strong fundamentals. It also has an “A” in Trade Grade, Buy & Hold Grade and Peer Grade, and a “B” in Industry Rank. It is ranked #2 in the 69 stocks Chemicals industry.
The Clorox Company (CLX)
CLX manufactures and markets consumer and professional products worldwide. The company is booming due to surging demand for surface disinfectants like bleach and wipes amid the pandemic. It operates through four segments – Health and Wellness, Household, Lifestyle, and International.
CLX has a long history of consistently paying quarterly dividends. Moreover, the stock has been increasing the payout for the past 43 years. Over the last ten years, the dividend for CLX grew at a CAGR of 7.7%. The most recent dividend declared by the company was $1.11 in September, payable in November. This accounts for a 4.7% year-over-year increase in the payout. While the four-year average dividend yield for CLX is 2.50%, the current annual dividend of $4.44 translates into a 2.11% yield.
CLX is scheduled to announce its first-quarter fiscal year 2021 results ended September 2020 on November 2nd. CLX improved its free cash flow by 102.5% year-over-year to $644 million in its fiscal fourth quarter ended June 2020. It returned $134 million to its shareholders in the form of dividends. The company reported a 22% year-over-year increase in sales to $1.98 billion, including double-digit growth across all reportable segments. CLX was successfully able to mold its production capacity to meet heightened demand.
EPS for the last reported quarter came in at $2.41, a 28% increase year-over-year. CLX’s Pine-Sol Original Multi-Surface Cleaner recently received approval from the US Environmental Protection Agency (EPA) for kill claims against SARS-Cov-2, the virus that causes COVID-19, on hard non-porous surfaces. Moreover, it acquired a majority stake in its long-standing joint venture in the Kingdom of Saudi Arabia in July to offer consumers in the Gulf region a range of cleaning and disinfecting products. Hence, analysts expect succeeding year EPS to grow 2.5% year-over-year.
CLX is rated “Buy” in our POWR Ratings system. It is rated “A” in Industry Rank, and “B” in Trade Grade and Buy & Hold Grade. It is also ranked #13 out of 34 stocks in the Consumer Goods industry.
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PG shares were trading at $143.02 per share on Wednesday afternoon, up $0.54 (+0.38%). Year-to-date, PG has gained 16.69%, versus a 7.97% rise in the benchmark S&P 500 index during the same period.
About the Author: Sidharath Gupta
Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More...
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