Consumer stocks have many good qualities in common. The best stocks in the household products industry have recognizable brands, and see steady demand in good economies and bad. Consumer staples are household essentials—products that people can’t (or won’t) do without, even when the economy enters a recession.

These are typically stable businesses that sell products people consume on a daily basis, which gives them pricing power and the ability to withstand recessions. For example, the largest publicly-traded stocks in the household products industry are Procter & Gamble (PG), Colgate-Palmolive (CL), Kimberly-Clark (KMB), Clorox (CLX), and Church & Dwight (CHD).

Each stock mentioned in this article is on our list of 350 consumer staples stocks that pay dividends to shareholders. 

More information can be found in the Sure Analysis Research Database, which ranks stocks based upon the combination of their dividend yield, earnings-per-share growth potential and valuation changes to compute total returns.

This article will rank the major household products stocks, in order from lowest expected returns to highest.

Household Products Stock For Dividends #5: Clorox

• Expected Annual Returns: 6%-7%

Clorox has raised its dividend for 41 consecutive years, including a solid 14% dividend increase on Feb. 13. Clorox is one of 53 Dividend Aristocrats. In fact, Clorox, Colgate-Palmolive, Procter & Gamble, and Kimberly-Clark are all Dividend Aristocrats.

Clorox is a relatively small company compared with the giants on this list, as it generated sales of $6 billion last year. However, it has a focused portfolio, with leading brands across its product categories. Some of Clorox’s core brands include its flagship Clorox products, as well as Glad, Kingsford, Pine Sol, Hidden Valley, RenewLife, and Brita.

Source: Bernstein Strategic Decisions Conference, page 4

In all, more than 80% of Clorox’s annual sales are derived from brands that hold the No. 1 or No. 2 market share positions in their categories.

On May 2, Clorox reported fiscal third-quarter financial results. Sales grew 3% for the quarter, while earnings-per-share rose 5% from the same quarter a year ago. Sales growth came from 3% volume growth and the benefit of price increases, partially offset by unfavorable product mix. Gross margin decreased by 120 basis points, due to higher commodity and logistics costs, which were partially offset by the benefits of cost savings and price increases.

Going forward, Clorox’s best growth catalyst could be nutritional supplements, an area of growth in the consumer staples industry. Clorox added to its nutritional supplement product line, with the recent $700 million acquisition of Nutranext. This acquisition gives Clorox a greater presence in the natural supplements category, with strong brands including Natural Vitality, Neocell, and Rainbow Light. Nutranext generated $200 million in sales last year.

Source: Bernstein Strategic Decisions Conference, page 14

We expect Clorox to generate earnings-per-share of $6.15 in 2018. Based on this, the stock has a price-to-earnings ratio of 20.6. We estimate fair value to be a price-to-earnings ratio of 19, which indicates valuation contraction going forward. However, we believe this will be offset by 5% annual earnings growth, and the 3% current dividend yield. In all, we expect total annual returns of 6.4% going forward for Clorox shareholders.

Household Products Stock For Dividends #4: Colgate-Palmolive

• Expected Annual Returns: 8%-9%

Not only is Colgate-Palmolive a Dividend Aristocrat, but it is also a Dividend King, an even smaller group of stocks with 50+ consecutive years of dividend increases.

Colgate-Palmolive traces its roots all the way back to 1806. It was founded by William Colgate, who started a starch, soap, and candle business in New York City. The company has been in business for more than 200 years.

Today, Colgate-Palmolive manufactures oral care products like toothpaste, personal care products such as soap, home cleaning products, and pet food. Its major brands include Colgate, Palmolive, Hill’s Science Diet, and more.

Source: 2018 CAGNY Presentation, page 4

On April 27, Colgate-Palmolive reported first fiscal quarter results.

One of Colgate-Palmolive’s most important growth catalysts is international growth, particularly in emerging markets like China, where Colgate-Palmolive has built a strong presence. Colgate-Palmolive has the #1 position in China, with market share above 30%. More than half of the company’s annual sales come from developing markets.

Emerging markets are extremely attractive for U.S. consumer products companies like Colgate-Palmolive. Emerging markets like China, India, and many others, have large populations, and are experiencing rapid economic growth. For example, last quarter, Colgate-Palmolive’s organic sales rose 1% in North America, while organic sales in Asia Pacific and Latin America increased 2.5%. Volume in India was up double-digits last quarter.

Source: 2018 CAGNY Presentation, page 75

By 2030, the global middle-class population is expected to explode, and most of the growth will be in the developing world. While the U.S. population is expected to remain relatively stable, populations are expected to rise significantly in Asia Pacific, the Middle East, Central and South America, and Africa.

Share repurchases are another catalyst for Colgate-Palmolive’s earnings growth. On June 18 Colgate-Palmolive approved an additional share repurchase of $5 billion, which represents approximately 9% of the company’s current market capitalization.

We expect Colgate-Palmolive will turn in earnings-per-share of $3.05 this year, which results in a price-to-earnings ratio of 20.8. With a fair value price-to-earnings ratio estimated to be 20, we view the stock as slightly overvalued. Fortunately, the company is expected to grow earnings by 7% per year. And, the stock offers a 2.7% dividend yield, for total expected returns of 8.9% per year including valuation changes.

Household Products Stock For Dividends #3: Procter & Gamble

• Expected Annual Returns: 9%-10%

P&G has the longest dividend growth streak of any stock on this list. It has increased its dividend for 62 years in a row, which makes it a Dividend Aristocrat and a Dividend King.

P&G is a giant in the household products industry, with a market capitalization of $192 billion. It has a large collection of high-quality brands, some of which include Bounty, Charmin, Gillette, Crest, Dawn, Pampers, Downy, Always, Pantene, Tide, Febreze, and many more.

However, P&G has trimmed down its portfolio in a major way, shedding itself of low-growth brands that were not deemed critical to the future direction of the company. For example, it sold the Duracell battery brand to Berkshire Hathaway (BRK-A) for $4.7 billion, and a collection of 43 beauty brands to Coty (COTY) for $12.5 billion.

The portfolio restructuring has helped P&G become more efficient and return to growth. For the fiscal 2018 third quarter, P&G earned $1.00 per share on revenue of $16.28 billion. Revenue increased 4.3% year-over-year, and beat analyst expectations by $60 million, while earnings-per-share were expected at $0.99 for the quarter.

Source: Earnings Presentation, page 4

Pricing was down 2%, but volumes increased 2%. Margins fell last quarter, due to higher raw materials and transportation costs, which together eroded gross margin by 140 basis points. Pricing and unfavorable mix accounted for an additional 190 basis points of margin erosion last quarter. Helping to offset this were productivity savings, which boosted margins by 230 basis points. Overall, earnings-per-share increased 4% from the same quarter a year ago.

P&G expects 2%-3% organic sales growth for the full year. In addition, the company upped the bottom end of its earnings growth forecast, from a range of 5%-8% previously, to 6%-8% growth.

Future growth will be boosted by the announcement of a major acquisition. P&G will buy the global consumer health business from German pharmaceutical giant Merck, for approximately $4.2 billion in cash.

Source: Acquisition Presentation, page 6

This is an attractive acquisition for P&G, as it has made expansion of its healthcare product line a strategic priority in recent years. P&G states the acquired businesses are growing at a “mid-to-high single digit pace”. The businesses being acquired make products such as vitamins, nutritional supplements, and other over-the-counter products.

The deal will help boost P&G’s existing healthcare product line, which grew organic volume and sales by 3% and 1% last quarter, respectively. It will help complement P&G’s own personal healthcare product line, as well as add new product categories currently unaddressed by P&G’s portfolio. According to Merck, the global OTC market is expected to grow 5% annually through 2025.

P&G is expected to generate earnings-per-share of $4.20, meaning the stock currently trades for a price-to-earnings ratio of 18.2. We believe the stock should be valued at a price-to-earnings ratio of 18.6, meaning the stock is only slightly undervalued. Earnings growth is pegged at 5% per year, plus the stock pays a dividend yield of 3.8%, for total annual return potential of 9.2% per year.

Household Products Stock For Dividends #2: Church & Dwight

• Expected Annual Returns: 9%-10%

Church & Dwight manufactures personal care and household products. Its major brands include Arm & Hammer, Trojan, Xtra, First Response, Nair, Oxi-Clean, and Orajel. Church & Dwight’s top 11 brands represent more than 80% of total sales.

The company has a very strong history of growth, and acquisitions have been the key to Church & Dwight’s growth strategy. The company acquired 10 of its 11 core brands.

Source: 2018 CAGNY Presentation, page 14

On May 3, Church & Dwight reported strong earnings. For the 2018 first quarter, revenue of $1.01 billion increased 15% year over year, and beat expectations by $31.5 million. Earnings-per-share also beat expectations, by $0.02 per share. Organic sales increased by 3.8% for the quarter.

Church & Dwight’s two major growth catalysts going forward are e-commerce and international expansion. In the U.S., Church & Dwight is investing heavily to boost its digital capabilities, to capitalize on the booming growth of the e-commerce industry. For example, in 2015 online sales represented just 1% of Church & Dwight’s total sales. In 2017, e-commerce was 5% of total sales, and continues to grow. In addition, Church & Dwight’s international business is growing at a high rate. International sales increased 7.8% in 2017, and are expected to rise 6% in 2018.

Source: 2018 CAGNY Presentation, page 59

Overall, the company expects 3%+ organic sales growth for 2018, along with 16% adjusted earnings-per-share growth.

Church & Dwight has a current dividend yield of 1.8%, which is a low yield that could be fairly unappealing for income investors. But what the stock lacks in yield, it more than makes up for with dividend growth. Church & Dwight has increased its dividend for 22 consecutive years, including a 14.5% dividend increase on 2/13/18. In the past five years, the company has increased its dividend by 9% each year on average.

Church & Dwight has the highest expected earnings growth of any stock on this list, at 9% per year over the next five years. However, the disadvantage of this stock is that it has a relatively high valuation, and a low dividend yield. The stock has a price-to-earnings ratio of 22.4, compared with our fair value estimate of 21.5. This means a declining valuation could reduce total returns by 0.8% per year.

The stock pays a current dividend yield of just 1.7%, the lowest yield on this list. As a result, total expected returns for Church & Dwight are approximately 9.9% per year, which is still an attractive rate of total return.

Household Products Stock For Dividends #1: Kimberly-Clark

• Expected Annual Returns: 12%-13%

Kimberly-Clark is a global consumer products giant that operates in 175 countries worldwide. The company has a market capitalization of $36 billion. Kimberly-Clark sells a wide product line that millions of people use every day, such as paper towels, diapers, and tissues. The Personal Care segment includes many of its flagship brands, such as Huggies, Pull-Ups, Kotex, Depend, and Poise. The Consumer Tissue segment includes the Kleenex, Scott, Cottonelle, and Viva brands, among others.

On 4/23/18, Kimberly-Clark posted first-quarter results. Revenue of $4.70 billion rose 4.9% year-over-year and beat expectations by $90 million.

Source: Earnings Presentation, page 5

Adjusted earnings-per-share increased 9% from the same quarter a year ago, to $1.71, and met analyst expectations. Organic revenue increased 2% for the quarter, including 3% growth in North American consumer products. Consumer tissue was a bright spot, with 5% organic growth for the quarter. Outside North America, organic sales rose 2% in developed markets, and 1% in the developing markets. Overall, volumes increased 3% for the quarter, which shows strong demand for Kimberly-Clark’s products.

Kimberly-Clark’s main growth catalyst over the long-term is the emerging markets. Nearly one third of Kimberly-Clark’s total sales are derived from developing markets, such as China and Latin America. Many emerging markets, such as China, have large populations and high economic growth rates.

Source: Barclays Global Consumer Staples Conference, page 27

In China, organic sales were down mid-single digits last quarter, as strong growth in feminine care was more than offset by lower sales in diapers. This was a disappointment, but Kimberly-Clark stated on its earnings call that it has just started to introduce a significantly upgraded Huggies premium diaper in China. It expects product innovation will restore volume growth in China. Elsewhere, organic sales were up mid-single digits in Brazil, while organic sales increased in the teens in Eastern Europe. Performance left a lot to be desired last quarter, but the developing markets will still be a long-term growth trend.

Kimberly-Clark expects to grow earnings-per-share growth of 11% to 16% in 2018. While higher raw materials costs will be a headwind this year, Kimberly-Clark is aggressively cutting costs elsewhere to offset the impact of cost inflation. The company expects over $2 billion of cost savings through 2021.

Kimberly-Clark is expected to have the highest annual returns of the major household products companies, based largely on its high dividend yield and low valuation. For example, the stock has a price-to-earnings ratio of 14.3, which we view as too low, given the company’s strong brands and growth potential.

Our fair value estimate for Kimberly-Clark stock is a price-to-earnings ratio of 18.2, implying significant upside potential from expansion of the valuation. A rising price-to-earnings ratio could add approximately 4.9% to Kimberly-Clark’s total returns. Combined with 4% annual earnings growth forecasts, and a current dividend yield of 4%, Kimberly-Clark’s total returns could reach 12.9% per year over the next five years.