Why did Dividend King Stocks like Coca-Cola, PepsiCo, and Procter & Gambleexperience a decline post-election?
The prominent indices concluded the week at record highs following the election, but notable figures from the consumer staples sector abstained from participating in the post-election surge.
Let's delve into why Coca-Cola (0.50%), PepsiCo (0.97%), and Procter & Gamble (-0.38%) are temporarily sidestepping the action but remain promising dividend stocks to consider.
The consumer staples market has experienced a lull
The consumer staples sector has enjoyed a prosperous year, fueled by giants like Walmart and Costco Wholesale, which have surpassed the S&P 500 and Nasdaq Composite so far in 2021.
Coke and P&G achieved all-time highs earlier this year, yet they started losing momentum in late September. The graph below illustrates a dip in Coke, Pepsi, and P&G's performance over the past three months while the S&P 500 experienced a staggering 12.7% increase during the same period.
Even prior to the election results, all three companies had started to pull back from their highs. The most straightforward factor: earnings were lackluster.
Addressing the same challenges
Despite anticipating record profits by 2024, Coca-Cola's unit case volumes saw a decline in the most recent quarter. Coke had barely managed to keep positive case volume growth, relying on increased prices to enhance earnings. This reduction in case volumes serves as a warning sign that consumers are hesitant to accept further price increments, and Coke must take action to boost demand.
Similarly, Pepsi's most recent quarter revealed declining volumes across all significant categories, including the beverages business, Pepsi-owned Frito-Lay, and Quaker Oats. Pepsi has struggled more compared to Coke and P&G this year, mainly due to the extended period of volume declines it has encountered. Nonetheless, Pepsi's management has been inventive, introducing strategies such as offering more product per bag and increasing the number of small chip bags in mixed packets to spark demand.
P&G's latest quarter mirrored weak sales growth, but its pricing strength remains exceptional. P&G is on track for another profitable year, expecting a low single-digit increase in net sales. Moreover, P&G generates plenty of surplus earnings to aggressively purchase back shares at an elevated rate, surpassing Coke and Pepsi's capacity at this juncture. Unsurprisingly, P&G boasts the most expensive valuation among the three companies, while Pepsi carries the lowest.
Although disappointing quarters for all three companies don't fully explain their absence from the post-election rally.
Hazard-free purchases deserving a second look
The sectors that gained the most in the aftermath of the election results were financials and industrials, which might profit from the new administration's policies, such as less regulation, simplified merger and acquisition requirements, and potential incentives for bolstering U.S. manufacturing and industrial production. Other sectors that surged were the customary picks of technology, consumer discretionary, and communications - stimulated by Nvidia, Apple, Microsoft, Tesla, Amazon, Alphabet, and Meta Platforms.
The consumer staples sector traditionally excels in uncertain times, which characterized the period leading up to the election. However, with the results now clear, investors appear to be favoring cyclical sectors that have the potential to stimulate economic growth.
Prudent investors should steer clear of succumbing to short-term market fluctuations or recklessly jumping into and vacating sectors based solely on momentum.
Coca-Cola, Pepsi, and P&G stand out as three ultra-secure dividend stocks ideally suited for risk-averse investors. The companies are recognized as Dividend Kings - meaning they have maintained and increased their dividends for at least 50 consecutive years. Pepsi's streak spans 52 years, Coke's is 62 years, and P&G is one of the longest-serving Dividend Kings with a 68-year streak. Investors should target these companies to generate passive income or supplement earnings during retirement, not to attempt to trump the market within a few months.
All three companies present moderate valuations and price-to-earnings ratios that are more affordable compared to the S&P 500. It would not be surprising if Coke, Pepsi, and P&G underperform the broader market in the short term. If this transpires, these companies might transform into irresistible bargains that can't be overlooked.
Investors might be keen on exploring sectors that could profit from the new administration's policies, such as finance and industrials, leading to a decrease in interest in stable dividend stocks like Coca-Cola, PepsiCo, and Procter & Gamble. Despite their struggling quarters, these companies, which are considered Dividend Kings, have maintained and increased their dividends for an impressive number of years, making them attractive for risk-averse investors seeking passive income or supplemental earnings during retirement.
In the current market environment, individuals who wish to invest in stable stocks might want to consider finance options with promising earnings potential, considering the favorable changes that the new administration may introduce in this sector.
