The New Dividend Aristocrats ( from the Wall Street Journal)

APRIL 14, 2009, 10:47 P.M. ET

Staple Goods, Steady Payouts


By ANJALI CORDEIRO
Makers of consumer staples like garbage bags, soap and soda have been sweetening their dividends during the recession and are expected to continue boosting their payouts in coming months, a striking contrast with the cuts made by many other industries.

Coca-Cola Co. and Kimberly-Clark Corp. are two large consumer brands that raised their dividends recently. There are likely to be more in the pipeline. Investors and analysts are counting on increases from companies ranging from Procter & Gamble Co. to Clorox Co.

The consumer-staples sector has "far more opportunity for dividend increases than other sectors right now," said Rick Helm, manager of the Cohen & Steers Dividend Value Fund. Consumer staples are generally dividend payers, and their cash flows have stayed healthy even in the recession.

Procter & Gamble, maker of Tide detergent and Pringles chips, could raise its quarterly dividend by 10% to 44 cents a share in coming weeks, said Goldman Sachs analyst Andrew Sawyer.

Clorox typically makes a dividend announcement in May, and this year's increase is likely to be in the double-digit range and could bring the payout to just north of 50 cents, said Mr. Sawyer. A Clorox spokesman declined to comment on future payments, but said the company is committed to its dividend.

These increases would come at a time when many large companies, including Alcoa Inc. and General Electric Co., have slashed their payouts. Financial companies have seen some of the worst declines, and even real-estate investment trusts, which are structured as dividend payers, have been cutting back in this area.

Consumer manufacturers haven't been immune to the sharp slide in spending. Their sales have been hurt by competition from cheaper private-label brands and retailer inventory cutbacks, even as their stocks have been beaten down on concerns they might have to roll back prices for their products. But consumer makers continue to generate strong cash flows because they sell daily necessities.

Mr. Helm warned that dividend increases in the consumer-staples sector may not be as robust as in previous years, but he still expects the payouts for the sector to grow roughly 8%.

Consumers "may not be going out and buying beautiful dresses and jewelery, but they've got to eat," said Tom Cameron, co-manager of Rising Dividend Growth Fund. Mr. Cameron said he is upbeat on PepsiCo Inc. and Nestle SA because both have raised their dividends at a steady clip for years and are likely to keep doing so.

Many investors look at dividends as not just a steady source of income but also as an indicator of a company's overall health. And consumer-product makers have a long history of raising their dividends.

There are several consumer-staples companies on Standard & Poor's "dividend aristocrat" list of companies that have 25 consecutive years of increased payouts behind them. These aristocrats include Clorox, Coca-Cola, Kimberly Clark, PepsiCo, and Procter & Gamble.
According to investment management firm Fayez Sarofim, Altria Group Inc., Coke, Nestle, Pepsi, Philip Morris International Inc. and P&G together paid out dividends worth $61 billion between the beginning of 2006 and the end of 2008. These companies may be able to keep that trend alive.

Cohen & Steer's Mr. Helm said cigarette maker Philip Morris International is likely to raise its dividend to 58 cents from 54 in the third quarter. Altria could move its dividend upward to 35 cents from 32, he said. The two tobacco companies didn't comment.

Altria recently said it was putting its buyback program on hold, but Mr. Helm isn't put off because he believes curtailing buybacks can sometimes ensure that a company has cash on hand for its dividend.

Some staples companies have so far managed to accompany dividends payments with stock repurchases. Procter & Gamble, which declined to comment on future dividends, had repurchased $5.2 billion in stock by the end of its second quarter ended December, with expected purchases of $8 billion to $10 billion for the full fiscal year.

Write to Anjali Cordeiro at anjali.cordeiro@dowjones.com

Printed in The Wall Street Journal, page B5C
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