Commodities & Metals

Inflation vs. Dividends in Consumer Staples, Dividends Win All Day (KMB, PG, CL, CLX, CHD, XLY)

It would be easy to say that inflationary pressures are impacting consumer staples and consumer discretionary stocks.  This sector remains one of our favorites for investors who want defensive protection and high income via dividends.  The fresh earnings reports from Kimberly-Clark Corporation (NYSE: KMB), Procter & Gamble Co. (NYSE: PG), and Colgate-Palmolive Co. (NYSE: CL) all show that pricing pressure is there.  This will foreshadow the results for Colgate-Palmolive Co. (NYSE: CL) and even for Church & Dwight Co. Inc. (NYSE: CHD)  

Pressures may keep building on the cost front and Joe Public may have to pony up more money for daily goods, but there is some real evidence out there that inflation may not really hurt these companies.  That is good news for investors, particularly for those who want dividends and who want to see gains from defensive stocks.  A great video from Mike Tarsala of Thomson Reuters puts up some great evidence showing how the inflationary pressure may actually skip these stocks with some great charts and graphs to overlay against the current trends.

That video shows some interpretation as well in the Consumer Discretionary Select Sector SPDR (NYSE: XLY) ETF, which tracks more of the discretionary spending companies.  The logic may sound like common sense, but investors need to know that there are cost cutting tricks for these companies.  More importantly, companies have been telegraphing for weeks now that they are going to have to start passing on higher costs to consumers.  Even Wal-Mart Stores Inc. (NYSE: WMT) has issued some light warnings.

We have done some work of our own in recent days, weeks, and months, and it is easy to see what is coming in this sector.  For starters, Kimberly-Clark Corporation (NYSE: KMB) remains our own sector pick as a stock to own for the next decade.  Most of the defensive plays in the consumer staples shares offer what we look for, but Kimberly-Clark is the cheapest and seems to continue on its shareholder-reward path.

It was just last week that we showed how the P&G dividend hike would likely keep pressure up on peers to keep raising dividends.  There is no change in that stance, not even by an inch. If companies can keep raising dividends, the translation is that income will either hold up or will keep growing. 

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