A successful income-producing portfolio receives dividends from a variety of industries, such as utilities, transportation, and consumer goods. I like consumer-focused companies that sell everyday household products, such as batteries, toilet paper, and lip balm.
Picking winning consumer stocks is challenging. I believe the best consumer stocks achieve growth in both revenue and earnings, have histories of raising dividends, and have positive outlooks. Three players in this space are Clorox, (NYSE:CLX) Kimberly-Clark, (NYSE:KMB) and Energizer Holdings (NYSE:ENR). Dividend yields for these stocks range from 2% to 3.2%.
Clorox is one of those companies that sounds like an old-fashioned, one-dimensional business, but it's really diversified. Besides Clorox Bleach, the company also sells household products such as bags, charcoal and cat litter, dressings, sauces, water filtration, and personal care products.
Consumer companies struggle to grow revenues, so they often look for acquisitions that will benefit the company. Every acquisition specialist wants to be the next Warren Buffett, but this is very difficult to do. Clorox acquired a winner in Burt's Bees in 2007 for $925 million, and Clorox has seen tremendous growth in sales and earnings in Burt's Bees.
Just last quarter, Burt's Bees delivered double-digit volume growth backed by product innovation in lip products as well as higher shipments of face products. Clorox earned $1.04 per share in its fiscal first-quarter ended Sept. 30, up from $1.01 during the same quarter a year ago. Revenue rose 2% to $1.36 billion from $1.34 billion a year ago.
Kimberly-Clark is a global consumer products company producing tissue, personal care, and health care products. Its brands include Huggies, Pull-Ups, Kotex, and Kleenex. The company also produces wipers, soaps, and sanitizers. Third-quarter earnings were $1.42 per share, up 9.2% from third quarter 2012. The one disappointment: revenue did not grow in the quarter.
The challenge for companies like Kimberly-Clark is the question of sustainability of paper products. Environmentalists are worried about deforestation around the globe. Kimberly-Clark is raising prices but could lose customers to private-label products. In addition, declining birth rates in developed countries could hurt demand for diapers, as seen in its decision to exit the diaper business in Europe.
Energizer Holdings is a manufacturer and marketer of batteries, portable lighting, and personal care products in the wet shave, skin care, feminine, and infant care categories. The company operates in two segments: household products and personal care.
Fiscal fourth-quarter earnings for Energizer were disappointing. The company earned $1.66 per share, compared with year-ago quarterly earnings of $1.84 per share. Revenue fell 6.7% to $1.07 billion in the quarter. Sales in Household Products dropped 14%, and sales grew less than 1% in personal care products. Profits in household products fell 29% to $79.1 million.
Energizer blamed declines on the loss of two U.S. retail customers in its household products segment. Total sales for fiscal year ended Sept. 30 were down 2.2%, while earnings were up 4%.
The dividend analysis
Dividend investors want to own stocks with increasing dividends. Clorox has grown its dividend 40.62% since 2009. Kimberly-Clark has grown its dividend 32.08% since 2009, while Energizer has only been paying dividends since September 2012. That said, Energizer recently raised its quarterly dividend to $0.50 from $0.40 per share.
I'm concerned with Energizer's lost revenue in the recent quarter after two retailers stopped selling its products. Kimberly-Clark faces some headwinds from environmentalists and declining birth rates in developed countries. But more importantly, I like Clorox's excellent history of raising dividends. It also certainly doesn't hurt that Clorox actually managed to increase both revenue and earnings in the most recent quarter.