The stock market has historically been a highly effective tool for compounding wealth over time. Another way to use the stock market to achieve your financial goals is to generate income from dividend stocks.
Sometimes, it can make sense to target a stodgy company with a high yield, rather than allocate all your savings into high-octane growth stocks. Maybe you're simply looking to diversify, or maybe you're focused on generating a specific amount of dividends to help supplement income in retirement.
In that case, it may interest you to know that investing $26,000 into Kenvue (KVUE 0.28%), a high-yield consumer staples stock, could earn you at least $1,000 in dividend income per year. Here's why Kenvue stands out as a solid dividend stock to buy now.
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Kenvue has been struggling since its spinoff
In August 2023, Johnson & Johnson spun off its consumer health and hygiene brands under a new publicly traded company called Kenvue. The idea was to allow J&J to focus on its pharmaceutical and medical technology segments, which generally have higher growth prospects than the consumer health division.
Kenvue has several well-known brands under categories such as:
- pain relief and fever (Tylenol, Bengay, etc.)
- allergy and respiratory (Benadryl, Zyrtec, among others)
- skin and beauty (Neutrogena, Aveeno, Clean & Clear, etc.)
- oral health brand (Listerine)
- baby and child-care brands (Johnson's Baby)
- digestive health (Lactaid)
- wound care (Band-Aid and Neosporin)
Although established, these brands aren't exactly growing sales at a breakneck pace. It's quite the opposite, in fact. Kenvue's net sales and operating margins have been falling as it struggles to offset inflationary costs and consumer-spending pressures.
To make up for the sluggish growth, Kenvue's Vue Forward initiative aims to achieve $350 million in annualized savings by 2026. The company has also been spending a considerable amount on advertising and investing in innovation.
In its first quarter, Kenvue launched a variety of marketing campaigns for its biggest brands with social media influencers to appeal to Gen Z consumers. The results led to greater penetration in target markets. So far, however, the ad spending, as a whole, hasn't translated to meaningful bottom-line results.
All told, the spinoff hasn't been a success, as measured by Kenvue's results and its underperforming stock price.
NYSE: KVUE
Key Data Points
Navigating industry challenges
A major challenge for Kenvue has been private-label brands. Consumers looking to reduce spending may turn to them if they perceive the quality of private-label brands are close enough to name-brand Kenvue items. The threat of private label hurts Kenvue's pricing power, which has been a key differentiator in the consumer staples space among companies that have elite portfolios of brands and can justify price hikes and those that don't.
Kenvue has been holding up fairly well despite competition from private-label brands. On its May earnings call, the company said that it hasn't been seeing a shift to private label globally. In fact, private-label penetration in its categories is down slightly.
Kenvue's global exposure gives it a unique advantage, compared to companies that are more domestically focused. In its recent quarter, about half of net sales came from North America.
The global reach allows the company to offset geographic pressures, such as currency-exchange rates or region-specific changes in consumer behavior. It also drives its brand recognition, which is helping the company hold its own against private-label brands.
A high-yield stock at a good value
Kenvue's results have been disappointing, but the stock is a good value and has a high yield. Its forward price-to-earnings ratio (P/E) is just 18.8 at the time of this writing, and its dividend yield is 3.9%. And because Kenvue was spun off from Johnson & Johnson, it inherited its status as a Dividend King -- which is a company that has paid and raised its dividend for at least 50 consecutive years.
Kenvue raised its dividend in July of last year, so another raise could be on the way in the coming weeks.
A worthwhile addition to power a passive-income portfolio
Kenvue's nearly two-year stint as an independent company has included a fair share of bumps. The stock is down from its post-split initial price and earnings are trending in the wrong direction. At first glance, Kenvue looks like a stock to avoid, rather than to invest in, but there's arguably a lot of potential for patient investors.
The company has an excellent line-up of brands across different product categories and at different price points with a global reach. It hasn't done a good job getting the most out of these brands, but it's also been a challenging operating environment for consumer-focused companies.
The consumer staples sector, as a whole, has been selling off as investors gravitate toward higher-growth names amid the broader market rebound. This has pushed companies like Kenvue into the bargain bin.
In sum, Kenvue is reasonably valued and offers a generous yield for investors seeking passive income. The stock is worth a closer look for investors who believe in the company's brands, but some individuals may want to take a wait-and-see approach to the stock until management's efforts yield better results.
