Investors in retirement typically go for high-quality companies offering solid fundamentals and a consistent track record of dividend payments over the years. Names such as Clorox (CLX -5.27%), Wal-Mart (WMT -2.74%), and Kimberly-Clark (KMB -2.61%) may not be the most exciting growth stories around, but slow and steady can get the job done for retirees, and these companies are among the most reliable dividend stocks in the market.
Cleaning up with Clorox
The Clorox Company owns a leadership position in several consumer staples categories. In addition to its flagship Clorox brand, the company owns widely recognized names such as Glad, Poett, Britta, Hidden Valley, and Ayudin, among others. The company made $5.7 billion in total revenue during 2015, and nearly 80% of those sales came from brands occupying the first or second market position in their respective industries.
Brand differentiation is a crucial competitive advantage in the industry, and management is leveraging on those strengths to produce healthy financial performance for investors. Constant currency sales grew 6% year over year in the last quarter of 2015, and earnings from continuing operations grew 11%. Clorox aims to deliver organic sales growth in the range of 3% to 5% in the coming years, while free cash flow is expected to be between 10% and 12% of revenue.
Clorox has an impressive trajectory of dividend growth over the long term, proving that the business can produce consistently growing cash flows through good and bad economic times. The company has raised dividends every year since 1977, accumulating 38 consecutive years of dividend growth under its belt. Clorox also has an active share buyback policy, and it has substantially reduced the amount of shares outstanding over the past decade.
At current prices, Clorox stock is paying a dividend yield of 2.4%, and the dividend payout ratio is quite safe, in the neighborhood of 63% versus earnings forecasts for the current fiscal year. Considering the company's track record of dividend payments and its reasonable payout ratio, Clorox looks well positioned to continue delivering clean and shiny dividends in the future.
Size matters in retail
The discount retail industry is notoriously challenging and competitive, especially now that brick-and-mortar retailers are facing a major competitive threat from Amazon.com and other online players. On the other hand, Wal-Mart is no average retailer by any means. With annual revenues of more than $482 billion, the company is the largest retailer on Earth, and this has major implications for investors.
Its gargantuan size allows Wal-Mart to negotiate conveniently low prices and flexible payment conditions with suppliers, many of whom owe their very own existence to Wal-Mart. In addition, scale generates operational efficiencies, and it also allows Wal-Mart to spread its fixed costs on a massive amount of units, reducing in this way fixed costs per unit. The discount retail business is all about offering competitive low prices to consumers, and Wal-Mart comes second to none in terms of cost competitiveness.
The company is increasing its investments in people and technology to improve service quality and accelerate online sales growth. This is putting downside pressure on profit margins over the short term, but management is doing the right thing by focusing on long-term growth as opposed to short-term earnings.
Wal-Mart has raised dividends each and every year since paying its first dividend in March 1974. The dividend payout ratio is comfortably low, in the neighborhood of 48% of earnings expectations for the current fiscal year, and the dividend yield is a respectable 2.9% versus the current stock price.
A boring business with exciting returns
Kimberly-Clark is a leading player in basic health and hygiene product categories, including areas such as diapers, bathroom tissues, feminine products, and paper towels. The company owns several top brands such as Huggies, Kleenex, Kotex, and Scott. Management has done an amazing job of expanding the business globally over the decades. Kimberly-Clark does business in over 175 countries, and more than 50% of total sales come from international markets.
Solid and predictable businesses can many times deliver outstanding returns for investors, and that's the case when it comes to Kimberly-Clark. The company has produced an impressive total return of over 250% over the past decade, downright crushing the S&P 500 index and its total return of 97% in the same period.
Just like Clorox and Wal-Mart, Kimberly-Clark has proved its strength by building an immaculate trajectory of dividend payments over the long term. The company has paid consistent dividends over the past 82 years, and it has raised distributions for 44 years in a row. Kimberly-Clark distributes nearly 60% of earnings as dividends, and the dividend yield is currently in the area of 2.7%.