3 Consumer Package-Goods Companies That Pay Big Dividends

By Markets Fool.com

Image source: Getty Images.

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The consumer packaged-goods industry is generally considered a boring section of the overall economy -- unless you're an astute investor. The household and personal consumer-products space has been a particular source of strength over the last 10 years. Household and personal products have provided investors a return of 9.25% per year while the greater S&P has returned 7.6%.

In addition to market-beating returns, there's another reason to buy household and personal-focused products companies: dividends. Here are three companies in this industry that pay higher than the S&P 500's dividend yield of 2.04%.

Company Dividend Yield PE Ratio (TTM)
P&G 3.1% 24
Unilever PLC 3% 24
Kimberly-Clark 2.9% 24

Data source: Reuters.

Procter & Gamble has an amazing dividend history

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Procter & Gamble (NYSE: PG) occupies a rare spot among dividend aristocrats. While it takes 20 years of consecutive dividend increases for a company to make this esteemed list, P&G has raised its dividend every year for the past 60 years, long enough to be a dividend aristocrat three times over. The Cincinnati-based consumer-goods company has paid dividends for 126 consecutive years, a figure that stretches back to its original incorporation.

Over the last five years, P&G has increased its dividend at a compound annual growth rate of 5%, approximately four times the rate of greater inflation during that period. P&G's diversified product line (currently, the company boasts 21 brands with annual sales of $1 billion or more) ensures no one product's struggles will put the company's dividend at risk.

Like every company on this list, P&G appears overvalued by a few metrics. Although the PE ratio is in line with the overall market at 24 times, analysts expect approximately 7% growth for the company. As a result of this low-growth consensus, P&G's PEG Ratio of 3.5 seems relatively high.For yield-starved investors, though, P&G's free-cash-flow payout ratio of 61% shows the company has no problem making its dividend payout.

Unilever has a lower dividend payout, but currency risks

Great Britain and Netherlands' Unilever PLC (NYSE: UL) is a smaller company than P&G and boasts only 13 billion-dollar brands. Over the last five years, however, Unilever has averaged 4.9% underlying sales growth. The company's home-care business category, in particular, had a good year in 2015, with sales growth of nearly 6%.

In many ways, Unilever's U.S.-listed shares and P&G's stock are similarly valued. In addition to similar dividend yield percentages and price-to-earnings ratios, analysts expect the companies to grow their bottom lines at similar rates over the next five years (PG's 6.8% vs. Unilever's 7.1%).

One area where Unilever compares slightly more favorably to P&G is dividend payout. Last fiscal year, Unilever's free-cash-flow payout ratio (operating income minus net capital expenditures) came in at 57.5% versus the aforementioned 61% for P&G. It should be noted that both companies are more than able to withstand a sharp downturn in operating income at these payout ratios.

One thing investors need to consider before looking into Unilever is currency risk. The company announces dividends in euros and converts them to dollars before paying U.S. investors. The issue is that the euro has weakened against the dollar as Brexit and slow growth have taken their toll on the shared-currency value. If you feel the euro is oversold against the dollar moving forward, this is a lower-risk way to benefit without directly entering the currency markets.

Kimberly-Clark may be the dividend-increase investment

When it comes to dividend increases, Kimberly-Clark (NYSE: KMB) has been the most aggressive of the three. Over the last five years, the company has increased its dividend 6.7% per year, from $2.84 per share to $3.68, versus a cumulative annual growth rate of 5% for P&G. Unilever's payout to U.S. investors has barely budged over the last five years as the U.S. dollar has gained ground over the euro during this time frame (see above).

Even including these dividend increases, Kimberly-Clark currently pays a lower yield than P&G and Unilever if we use the last 12 months of payouts, but that's due to the stock's impressive rise during the last five years. Versus an identical 39% return for Unilever and P&G, Kimberly-Clark's return has increased 97% over the last five years. If Kimberly-Clark can continue to raise its dividend at the same clip, it could soon be the highest yielder of the three.

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Jamal Carnette has no position in any stocks mentioned. The Motley Fool recommends Kimberly-Clark, Procter and Gamble, and Unilever. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.