3 high-yielding Dividend Kings: Buy, sell or hold?

January 26, 2024 at 10:17 AM EST

Dividend Kings are attractive for income investors because of the reliable payments and insulation from market downturns.

These buy-and-hold names are also tightly held, significantly affecting their volatility and resistance to knee-jerk selling. Many, such as Procter & Gamble Co. (NYSE: PG), Archer-Daniels-Midland Co. (NYSE: ADM) and Colgate-Palmolive Co. (NYSE: CL), also come with higher-than-average yields, adding leverage to the total returns, which have been great over time.

The average three-year beta for these stocks is 0.6x the S&P 500; the average yield is 2.75%, but are they a buy, sell or hold?

Investors buy into Procter & Gamble's leverage

Among the many takeaways from Procter & Gamble's earnings report is pricing power. The company made significant pricing increases over the last year, which supported growth, and there was only a mild amount of elasticity.

The result was mixed, with the top line up year-over-year but weaker than expected, offset by margin strength, 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.

The Procter & Gamble Company is among the highest quality consumer staples and trades at a high valuation because of it. However, the 24x it trades for is below average for the stock and further offset by dividend quality. The stock yields about 2.45%, is trading at recent levels, and should grow again in 2024. The pace of distribution increases isn't robust, but the 6% CAGR is at the high end of the range for this group, and there are repurchases to consider. Repurchases projected for this fiscal year increase the effective yield by more than 55%.

The price action in PG stock fired a trend-following signal following the Q2 release and can move higher. The stock is trading at the low end of the analysts' target range with significantly bullish activity post-release. MarketBeat.com tracks six revisions with higher price targets and an implied 7.5% advance at the midpoint. A move to the analysts' consensus would put this market at an all-time high.

Procter & Gamble chart

Archer-Daniels-Midland drops to deep-value territory: Analysts hold

A scandal rocked commodity giant Archer-Daniels-Midland, which sent its shares into deep-value territory. The SEC is probing issues related to the nutrition unit that may impact results this quarter. The company also issued weak guidance, adding to the market decline. The company put its CFO on leave pending the probe's conclusion.

Archer-Daniels-Midland is a deep value trading at 10x its earnings forecast, putting it at the low range for consumer staples-oriented companies, Dividend Kings and high-yielding stocks. Aside from the threat of misstated financials, the company's cash and cash flow are solid and support a healthy dividend.

Execs issued the 52nd annual increase as expected, adding 11% to its already robust 3.5% per-share yield.

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

Archer-Daniels-Midland chart

Colgate-Palmolive is another product company with pricing power

Colgate-Palmolive reported an even better quarter than The Procter & Gamble Company, with top- and bottom-line growth ahead of its competitor and above consensus. A 7% increase in average pricing compounded by flat volume drove results. Flat volume is noteworthy because consumer staples businesses across the spectrum are struggling with volume growth and making up the difference with prices.

Colgate-Palmolive stock is also highly valued due to its dividend quality. This King has increased for 60 years and will make another soon. 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 near fair value. However, the sentiment and price target are rising, bringing the high end of the range into play. A move to the analysts' highest target would put this market at a new all-time high.

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3 high-yielding Dividend Kings: Buy, sell or hold?

Investors buy into Procter & Gamble's leverage

Archer-Daniels-Midland drops to deep-value territory: Analysts hold

Colgate-Palmolive is another product company with pricing power

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