Thanks to a pair of late-April earnings updates, investors now have a clearer picture of the health of the consumer staples industry. Despite cost and demand pressures, Procter & Gamble (PG 0.54%) and Kimberly-Clark (KMB 0.97%) both posted strong sales trends into early 2023. The companies raised key aspects of their short-term outlooks as well.
But which one is the better buy for income investors today? Let's dive right in.
Growth and profits
While both companies are growing today, P&G has better sales trends. Organic revenue was up 7% in the fiscal quarter that ran through late March, leading executives to raise their full-year outlook. Kimberly-Clark posted a 5% uptick for the same period and left its outlook unchanged. P&G management forecast a 6% increase this year and Kimberly-Clark projects between 2% and 4% growth.
P&G appears to have more pricing power, too. Sales volumes fell just 3% last quarter as prices jumped 10%. "We delivered strong results," CEO Jon Moeller told investors on April 21. Kimberly-Clark endured a more painful 5% volume drop this past quarter, suggesting a bit more challenges in passing along higher costs.
Cash and dividends
Dividend growth is ultimately driven by cash flow and earnings, which are strong for both companies. Kimberly-Clark reported much higher cash flow this past quarter, along with rising gross and operating profit margins. Cost cuts and price increases lifted P&G's profitability as well, and the industry leader converts over 21% of sales to profit, compared to Kimberly-Clark's 14% rate.
PG operating margin (TTM) data by YCharts. TTM = trailing 12 months.
The good news for shareholders of both companies is that cost increases appear to be moderating. P&G and Kimberly-Clark both reduced their forecasts around expense spikes on things like raw materials and shipping, leading to brighter earnings outlooks.
Still, P&G's relative strength paved the way for faster dividend growth. The company lifted its dividend by 3% this year, compared to Kimberly-Clark's 1.7% increase.
The better value
While P&G comes out ahead on key growth and financial metrics, there are a few good reasons to like Kimberly-Clark as a dividend stock. The yield on shares is currently 3.3%, which is well above P&G's 2.4% and the 1.7% yield that investors could receive from owning the wider S&P 500. Kimberly-Clark is also a cheaper stock, valued at a price-to-sales (P/S) ratio of 2.4 compared to P&G's 4.8.
Those differences might convince some income investors to prefer Kimberly-Clark stock today, especially since its lower valuation reduces the risk of a big price decline if a recession develops over the next several quarters.
Yet P&G earned its premium through faster growth and market-leading profitability. These factors imply stronger cash flow and dividend growth over the long term, which should support excellent returns for income investors who simply hold the stock. Dividend fans will find plenty to like in both consumer staples giants. But P&G seems a bit more attractive right now.
