Since the dawn of time, people have made the attempt to look presentable to one another. Although these attempts may not always work, personal care products try to help us achieve this goal. Not only do the following five companies help make us look our best, they also pay great dividends and could be powerful supplements to your portfolio.
Let's take a look at the companies in question and the cash they're shelling out:
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|Avon Products (NYSE: AVP )||5.8%||159.8%||Add|
|Unilever NV (NYSE: UL )||3.4%||62.9%||Add|
|Procter & Gamble (NYSE: PG )||3.4%||66.0%||Add|
|Colgate-Palmolive (NYSE: CL )||2.3%||46.1%||Add|
|Nu Skin Enterprises (NYSE: NUS )||2.0%||21.9%||Add|
Not bad. In fact, each of these looks quite attractive, considering the 10-year yield on Treasuries is just 1.8%, which can't offer the underlying capital growth potential of equities. Let's take a closer look at these numbers and the businesses behind them to make sure we're not missing anything.
Avon's juicy yield looks enticing at first. But the payout ratio -- the percentage of earnings that go to paying the dividend -- is astronomical. In fact, the dividend may be so high because investors are betting that it will be slashed soon. With nearly 2.5 times more in outstanding debt than equity, Avon's prodigious dividend yield should be taken with an equally massive grain of salt.
Unilever's dividend, however, is far more sustainable. This massive Netherlands-based conglomerate -- worth nearly $100 billion -- can afford to reward investors. It's broadly diversified among product lines, so no one product is going to make or break the company, but with personal care brands like Dove, Axe, and St. Ives, Unilever has the recognition and built-in consumer base to continue keeping people clean and investors well-paid for some time.
Everyone knows the name Procter & Gamble, which is nearly twice the size of Unilever, and it can afford to pay a high dividend. When it comes to hygiene, two of the company's five core business segments are beauty and grooming. These segments contain a multitude of household brands, such as Head & Shoulders, Olay, and Pantene in the beauty segment, and Braun, Fusion, Gillette, and Mach3 in the grooming segment. Also consider that Procter & Gamble has a health care segment on top of that -- replete with brands like Crest, Oral-B, and Vicks -- and we're looking at a company invested in helping the consumer look their best.
But fellow Fool Austin Smith notes that at a current P/E of around 22, the dividend stalwart may be trading at elevated levels. Citing Procter's already massive size, and the fact that it will have to repatriate half of its sales to the U.S. against a strong dollar, he advocates holding off on this stock.
Next up on our table is Colgate, merely a $50 billion company. Colgate focuses more exclusively on personal and oral care products, although it also sells other consumer products like laundry detergents, fabric solutions, and so on. In another piece suggesting Procter & Gamble may be overvalued, Austin mentions that Colgate has been taking market share in the higher-growth emerging-markets regions. With earnings rising at an annual rate of 15% over the past five years and the stock up more than 16% in 2012, investors may want to take notice of this quietly dominant company, which I've added as an outperform pick on my CAPS page.
Finally, we come to Nu Skin. While it may not have discovered the fountain of youth just yet, it does make anti-aging products and revitalizing skin care products, which is the next best thing, right?
Nu Skin is less than half the size of Avon, and easily the smallest company on the list, with a $2.5 billion market cap. This relatively smaller size allows the company to grow more quickly than some of the larger players with higher dividends. We see this reflected in the company's financials: Earnings have risen an average of 40% per year over the past five years.
These five companies all have impressive yields. But we've talked about the importance of looking past the surface and into the truly beautiful aspects of these stocks: the dividend sustainability and the dynamics of their businesses. Large, diverse companies that rely on consumer products like personal care and hygiene items for staying power may not be the next big growth story, but they're probably not the next big bust either, and their stocks will pay you well to simply stay put.
Motley Fool analysts have put together a special free report that is a must-see for anyone with an eye toward safer, blue-chip stocks that promise a steady income stream. "The 3 Dow Stocks Dividend Investors Need" outlines three mainstream companies paying investors to hold steady, and you can read through it today by clicking here.