3 Overlooked High-Yield Consumer Defensive Stocks to Help Tackle Inflation
November 18, 2022
Consumer Defensive Stocks Are Resilient
As recession fears grow and Americans look to reign in their spending, consumer defensive stocks have come back in focus. These are the stocks of companies that sell products and services that are considered essential. Even during recessions, people need to eat, drink, take medication, and use personal hygiene products. Or rather, people aren’t willing to live without these types of products even when their budgets are tight.
That doesn’t mean consumer defensive stocks don’t face periods of volatility. There’s no such thing as a recession-proof stock, but consumer defensive stocks are definitely recession-resilient. The Consumer Staples Select Sector SPDR Fund (NYSE:XLP) has been on a roller coaster ride this year, falling by 2.5%. Not stunning, but far better than the S&P 500, which has lost 16% of its value year-to-date, and the Consumer Discretionary Select Sector SPDR (NYSEARCA:XLY), which has lost 29%.
Even though many consumer defensive stocks have been taking a hit in terms of share price, they cushion the blow by providing reliable, high-yield dividends. In many cases, thanks to the companies’ significant cash flow, they’re able to raise their dividends on a regular basis.
In an economic environment with inflation that’s decades high and wages that aren’t keeping up, extra income from dividend stocks is certainly welcome.
Moreover, consumer defensive companies with robust brand awareness and a loyal customer base are able to deal with ongoing market volatility and rebound more quickly once the stock market bottoms. This is good news, since the biggest investment gains can come during bear markets.
Here are three reliable, high-yield consumer defensive stocks that are poised to rebound after the stock market bottoms.
| Company Name | Stock Ticker | Share Price | Year-to-Date Change | Annualized Dividend | Dividend Yield |
| Alico, Inc. | NASDAQ:ALCO | $31.31 | -11.0% | $2.00 | 6.2% |
| Newell Brands Inc | NASDAQ:NWL | $13.95 | -34.0% | $0.92 | 6.5% |
| Universal Corp | NYSE:UVV | $44.80 | +7.8% | $3.16 | 5.7% |
Alico
Alico, Inc. (NASDAQ:ALCO) is one of the largest citrus fruit growers in the U.S., with about 49,000 gross acres that are used to grow citrus in seven Florida counties. In total, the company owns approximately 74,000 acres of land. The company has sold off portions of its non-core ranch lands and acquired new citrus acres. (Source: “Investor Presentation: June 2022,” Alico, Inc., last accessed November 17, 2022.)
In fiscal 2021 (ended September 31, 2021), the company produced about 6.4 million boxes of citrus fruit. Since 2018, Alico, Inc. has planted approximately 1.7 million new trees, with the anticipated benefits of these trees expected to start in 2023.
Alico, Inc. has paid dividends, with a single exception, since 1974. Since the beginning of 2015, it has made aggregate dividend payments of more than $30.6 million. The company has increased its dividend annually numerous times. In June 2021, it hiked its quarterly payout by 177% from $0.18 to $0.50 per share. Management has maintained that dividend since then. It works out to a yield of 6.2%. (Source: “Dividend History,” Alico, Inc., last accessed November 17, 2022.)
Alico has more than enough room to hike its distribution; the company’s payout ratio is just 46.4%.
Newell Brands
Newell Brands Inc (NASDAQ:NWL) is a global consumer goods company with a solid portfolio of well-known brands, including “Coleman,” “Elmer’s, “Oster,” “Paper Mate,” “Rubbermaid,” and “Sharpie.”
The company announced fabulous results for the first half of the year, but its third-quarter sales were down. This reflects a tough operating environment, with many retailers adjusting their inventory positions, inflation causing financial pressure, and the strong dollar having an impact. (Source: “Newell Brands Announces Third Quarter 2022 Results,” Newell Brands Inc, October 28, 2022.)
That said, the company responded by maintaining cost discipline and remaining focused on reducing its inventory and strengthening its cash flow.
On the plus side, Newell Brands Inc reported its fourth consecutive quarter of core sales growth (9.2%), reflecting strong price realization. The company’s core sales grew in North America, Europe, the Middle East, Africa, and Latin America.
Newell Brands Inc currently pays a quarterly dividend of $0.23 per share, for a yield of 6.5%. The company’s payout ratio is just 68.2%, giving management plenty of financial wiggle room to raise Newell stock’s dividend once the current macroeconomic headwinds subside.
Universal Corp
Universal Corp (NYSE:UVV) is the world’s leading global supplier of leaf tobacco. It has operations in more than 30 countries spanning five continents. The company provides agronomy support, research, and financing to tobacco farmers but doesn’t manufacture consumer tobacco products. It procures, processes, packs, stores, and ships burley and tobacco that’s used mainly in the manufacture of cigarettes, cigars, cigarillos, and pipe tobacco—as well as smokeless products. (Source: “Investor Presentation: Fiscal Year 2023,” Universal Corp, August 3, 2022.)
Universal Corp’s largest customers include Altria Group Inc (NYSE:MO), British American Tobacco PLC (NYSE:BTI), China Tobacco International Inc., Japan Tobacco Inc, and Philip Morris International Inc. (NYSE:PM).
While Universal Corp isn’t as well known as other tobacco companies, its dividend history is one of the most enviable in the industry. The company has raised its annual dividend for the last 51 consecutive years.
Whether they were facing a recession, pandemic, or geopolitical tensions, investors have been able to rely on Universal Corp stock to give them an annual raise. That’s more than most people can say about their employers. In November, the company declared a quarterly dividend of $0.79 per share, for a yield of 5.7%. That dividend is payable on February 6, 2023 to common shareholders of record as of the close of business on January 9, 2023.
Universal Corp also approved a program for the repurchase of up to $100.0 million worth of its own common stock. The company currently has approximately 24.6 million common shares outstanding.
The Lowdown on High-Yield Consumer Defensive Stocks
Interest rates are still going up, inflation remains at decades highs, and the chances of a recession in 2023 are excellent. This will continue to put the spotlight on high-yield consumer defensive stocks.
Investors who are interested in this type of stock should look at companies with solid balance sheets and cash flow that can support high-yield dividends. Alico, Inc., Newell Brands Inc, and Universal Corp are just three examples.
