3 Undervalued And High-Yielding Consumer Staples Stocks The consumer staples sector is among our top picks for dividend-growth investing but it pays to be choosy, here are three picks with value, growth, and yield.
By Thomas Hughes •
This story originally appeared on MarketBeat
Consumer Staples: Don't Pay More For Less
The consumer staples group is among our favorite when it comes to dividend-growth investing. The group offers value, growth, and yield but you do need to be choosy when picking your stocks. Valuation in the group ranges from 13X earnings at the low-end (Tyson Foods) up to 30X earnings at the high-end (McCormick) and there really isn't much difference when you dig into the details.
The more highly valued stocks may come with slightly better balance sheets or be coming off a cycle of improvement, but they also tend to yield less with only a comparable outlook for distribution growth. Conversely, the lower-valued company's pay higher yields with only a marginal difference in outlook. The bottom line, the consumer staples sector is where you want to be if you are looking for steady dividends, a little capital growth, and a positive outlook but pay attention to what you are buying and be sure to do some comparison shopping before you buy.
Kraft-Heinz Is In A Multiple Expansion
Shares of Kraft-Heinz (NASDAQ: KHC) have been moving higher over the past few months but are still only trading about 15X forward earnings. At this level, it is not the cheapest stock in the group or even on this list but it is the highest-yielding. The company pays about 4% with shares trading near $40 and the payout is reliably safe. While we are not expecting the company to make a distribution increase soon we do think an increase is probable within the next year or two. The company is in the late stages of a major refocusing effort that has it on track to increase revenue, increase profitability, grow earnings, pay down debt, and get back into a cycle of dividend increases.
Kraft-Heinz is scheduled to report earnings at the end of April. The company is expected to deliver a tepid 1.46% in YOY revenue growth but there are some factors to consider. The first is that Kraft-Heinz has been shedding its under-performing businesses such as Planters which will have a negative impact on earnings. The second is the sale of such businesses is increasing the company's cash position, improving the balance sheet, and strengthening its ability to fund growth initiatives. The third is that economic reopening is underway, stronger than expected, and accelerating. That includes a reopening of the foodservice and hospitality industry we think will produce revenue and EPS well above consensus targets.
Conagra's Repositioning Is Farther Along
Conagra (NYSE: CAG) is another consumer staple emerging from a major turnaround effort but there is a difference. Conagra's efforts began years before the pandemic focusing on portfolio quality and growth. Now, a full year after the pandemic and despite the boost to sales, this stock is still trading at only 14X earnings with earnings set to be released later this week. The company is expected to produce 6.25% YOY revenue growth and we think this underestimates the strength of the reopening and the company's recently found leverage. The combination of increased sales, mix, and price increases have earnings growth outpacing revenue growth.
Regarding the dividend, Conagra is yielding about 2.95% with shares trading near $37.50. At this rate, the company is paying out about 41% of its earnings which puts it in a much better position to increase the yield. Conagra increased the payout by 33% last year and we think it safe to assume another increase will come this year, but we don't expect it to be quite so large. 
Kellogg Company Is Ready For The Post-Pandemic Environment
Kellogg Company (NYSE: K) is trading about 16X of its earnings with a yield near 3.6% and a strong outlook for distribution growth. The company has been increasing the payout for 16 years and there is no reason not to expect another this year. Not only has revenue and earnings seen a boost from the pandemic but the company has also made several cost-saving initiatives that have widened margins, boosted earnings, and increased the dividend safely. The analysts at Argus recently upped their price target on the stock for those very reasons citing cost-saving efforts, market share gains, and retention efforts. They assigned a price target of $72 or an upside of 12.5% and we think that a low estimate as it implies only a 17X earnings multiple. 
