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3 Top Dividend Aristocrats to Buy for the Next Market Crash

By Keith Noonan - Oct 7, 2017 at 11:31AM

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These three leaders in consumer staples could help insulate your portfolio against the next bear market.

When it seems like everyone and their neighbor are turning to growth stocks as an almost-surefire way to generate strong returns, smart investors know to take caution and look for ways to mitigate their risk profiles. That's not to say that today's bull market is necessarily teetering on the verge of turning bear, but with major indexes at record highs, it's a good time to diversify toward stocks that have what it takes to help weather a potential downturn.  

With that goal in mind, companies that pay sizable dividends and have a history of reliable payout growth often make good risk-reduction vehicles, but there are standouts even among the list of Dividend Aristocrats. Read on to see why Clorox (CLX 0.28%), Colgate-Palmolive (CL 0.39%), and Kimberly-Clark (KMB 0.68%) are top stocks for building a crash-resistant portfolio.

Three stacks of coins with a clock in the background.

Image source: Getty Images.

A company with centuries-long staying power

Like the other companies profiled in this article, Colgate-Palmolive deals mostly in essential products and is backed by brand strength that should help it retain pricing power when spending habits are otherwise tightening. Companies in the consumer staples space can provide protection during market crashes because demand for their products is unlikely to be seriously impacted by economic downturn. As a result, investors often pour into these stocks in bear markets to take advantage of their sturdy businesses and reliable income generation.

Colgate-Palmolive fits this defensive mold, and its increasingly efficient business, stable of great brands, and rock-solid dividend profile make it a stock that's well suited for insulating your portfolio. Put simply, it's a business with staying power. The Colgate company was founded in 1806 and purchased by Palmolive in 1928, and the combined business now owns a range of brands including AJAX, Irish Spring, and Tom's of Maine in addition to its namesake toothpaste and cleaning products. Sales growth has been slow recently, but the company is still increasing earnings by raising prices and reducing operating expenses, and the long-term outlook remains promising.

Turning to the dividend, the company's 2.2% yield might not look like much, but a 55-year history of annual payout increases shows a clear commitment to returning value to shareholders regardless of economic ups and downs. Its 55% payout ratio also indicates that the company is in position to continue adding to its stellar history of dividend growth, and Colgate's product portfolio and supply chain advantages mean investors can be confident the business is built to last.  

Growth prospects and a solid dividend

The Clorox Company has been in operation since 1913, boasts a 40-year ongoing streak of annual payout increases, and owns a powerhouse selection of consumer-essentials brands that are likely to be sales leaders for decades to come. In addition to its namesake bleach and cleaning products, the company makes a diverse line of goods that includes Glad bags, Liquid Plumr clog removers, and Brita water filters. More than 80% of its sales come from brands that occupy either the first or second market-share positions in their respective categories, and distribution advantages add to a moat that puts Clorox in good shape to fend off competitors and continue growing its dividend. 

The stock boasts a solid 2.6% dividend yield, and its current 61% payout ratio shouldn't be an obstacle to delivering solid payout increases in light of Clorox's steadily growing business. The company anticipates that it will be able to continue expanding sales at an annual rate between 3% and 5% through 2020. With the pricing strength afforded by its stable of trusted brands, that's a target that the company is primed to make good on. The company's cost-cutting measures and share repurchases should also ensure that its profits grow at an even faster rate, clearing the way for long-term payout growth.

Clorox might not look cheap trading at 23 times forward earnings estimates, but investors are getting a well-managed company that's likely to retain leadership in dependable product categories and deliver uninterrupted yearly dividend growth.

Essential products and reliable income

Founded in 1872, Kimberly-Clark is a company that has have survived and thrived through depressions and wars -- and one that still has what it takes to deliver wins for investors. Its business is backed by a stellar brand catalog that includes Scott paper towels, Huggies diapers, and Kleenex tissue paper -- and the company reports that nearly one out of every four people worldwide uses one of its products daily. That's a testament to Kimberly-Clark's historically well-managed business and the universal appeal of its products.

Sales have stagnated recently amid increased competition and some slowdown in the broader personal-care space, but it's likely that revenue will eventually return to the path of long-term growth, and the company has avenues to increasing earnings even during slow periods. Like other leaders in the consumer-staples space, Kimberly-Clark is in the process of implementing a cost-savings plan. This helped the company deliver a record $2.2 billion in profits last year despite a 1% revenue decline, and it expects to achieve as much as $450 million in expense reductions in the current fiscal year. With the company's expense-reduction initiatives still in relatively early phases, there should be room for continued improvements.

Even with the recent sales slowdown, Kimberly-Clark looks like a worthwhile buy trading at less than 19 times forward earnings -- especially for those seeking defensive stocks and reliable income generation. The stock boasts a 3.3% yield, and with a 45-year history of delivering yearly payout increases, investors can be confident that shares purchased today will deliver an even greater yield in the years to come. 

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Stocks Mentioned

Colgate-Palmolive Company Stock Quote
Colgate-Palmolive Company
$79.19 (0.39%) $0.31
The Clorox Company Stock Quote
The Clorox Company
$137.33 (0.28%) $0.39
Kimberly-Clark Corporation Stock Quote
Kimberly-Clark Corporation
$133.44 (0.68%) $0.90

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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