3 High Yield Dividend Kings: Buy, Sell or Hold?

Dividend Kings are attractive to income investors due to reliable payouts and insulation from market downturns.

These buy-and-hold stocks are also tightly held, which significantly impacts their volatility and resistance to knee-jerk selling. Many, such as Procter & Gamble Co. NYSE: PAGE, Archer-Daniels-Midland Co. NYSE:ADM AND Colgate-Palmolive Co. NYSE:CLthey also offer above-average returns, adding leverage to total returns, which have been excellent over time.

The average three-year beta for these stocks is 0.6x the S&P 500 Index; the average return is 2.75%, but is it buy, sell or hold?

Investors buy into Procter & Gamble’s leverage

Among the many lessons learned from Procter & Gamble’s earnings report is pricing power. The company has made significant price increases over the past year, which have supported growth, and there has been only mild elasticity.

The outcome was mixed, with better year-over-year results but weaker than expected, offset by strength in margins, better-than-expected earnings and a positive outlook for the remainder of the fiscal and calendar year. Analysts are raising their targets and expect growth to accelerate in the next fiscal year.

Procter & Gamble Company is among the highest quality consumer staples and for this reason it trades at a high valuation. However, the 24x it trades for is lower than the stock’s average and further offset by the quality of the dividends. The stock yields about 2.45%, is trading at recent levels and is expected to grow again in 2024. The pace of distribution increases is not robust, but the 6% CAGR is at the high end of the range for this group, and there are buybacks to consider. Planned buybacks for this fiscal year increase the effective yield by more than 55%.

PG stock price action gave a trend-following signal after the second quarter release and may move higher. The stock is trading at the low end of analysts’ target range with significantly bullish activity following the release. MarketBeat.com tracks six revisions with higher price targets and an implied 7.5% advance at the midpoint. A move towards the analyst consensus would send this market to all-time highs.

Archer-Daniels-Midland Enters Deep Value Territory, Analysts Say

A scandal has rocked commodities giant Archer-Daniels-Midland, which has plunged its shares into deep value territory. The SEC is reviewing matters related to the nutrition unit that could impact this quarter’s results. The company also provided weak guidance, contributing to the market’s decline. The company has placed its CFO on leave pending the conclusion of the investigation.

Archer-Daniels-Midland is a deep value trading at 10 times earnings estimates, putting it on the low end for consumer staples-oriented companies, Dividend Kings and high-yield stocks. Aside from the risk of flawed financials, the company’s liquidity and cash flow are strong and support a healthy dividend.

Executives issued the 52nd annual raise as expected, adding 11% to an already robust 3.5% earnings per share.

Analysts are lowering their sentiment ratings, but two things are clear: the analyst community still holds this stock and sees it trading much higher than it is today. The move lower brings this market into the low end of the range, a potential low for the stock, with a 35% upside consensus forecast.

Colgate-Palmolive is another product company with pricing power

Colgate-Palmolive posted an even better quarter than The Procter & Gamble Company, with top-line and bottom-line growth exceeding that of its competitor and above consensus. The results were driven by a 7% increase in average prices, combined with stable volume. The flat volume is notable because consumer staples companies across the spectrum are struggling with volume growth and making up the gap with pricing.

Colgate-Palmolive shares are also very popular thanks to the quality of the dividends. This King has been growing for 60 years and will soon make another. Yield and Health are comparable to The Procter & Gamble Company at 2.35% and 60% respectively. Analysts rate this stock a “Moderate Buy,” but see it trading close to fair value. However, sentiment and price target are rising, putting the high end of the range in play. A move towards analysts’ higher target would take this market to a new all-time high.

Before you consider Procter & Gamble, you’ll want to hear this.

MarketBeat tracks daily Wall Street’s highest-rated and best-performing research analysts and the stocks they recommend to their clients. MarketBeat identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market takes hold… and Procter & Gamble wasn’t on the list.

While Procter & Gamble currently has a “Moderate Buy” rating among analysts, top-rated analysts believe these five stocks are better buys.

View the five stocks here