Micro Blog #14: Which Is A Better Staple Stock KMB or PG?

I'm now focusing on building up my staple positions. I currently own Kimberly-Clark and want to add more shares to its position. However, Procter & Gamble is also a good choice. I don't currently own PG, but could start a position.

With the market correction, both stocks are yielding over 3% and have a very long dividend history of consecutive yearly growth.
Here is how the valuations look for these two stocks:


On valuation basis, KMB looks cheaper at P/E of 17.8, while PG is still richly valued at a P/E of almost 20. I believe this is because PG is demanding a higher premium due to its higher quality credit rating of AA- and lower debt/cap of 23%. PG is also a much bigger company (market Cap 205B) vs.  KMB (40B).

I like the higher yield of KMB of 3.6% vs. PG of 3.4%. It's a small difference, but KMB has a slightly higher dividend growth rate as well. KMB dividend increases for the past several years have been around 5% compared to PG's annual dividend increases of 2-3%.

Also, since I already own KMB, I should be focusing on building it up rather than starting a new position in PG. But that's just me.

How about you? Which one would you pick and why? or do you have another staple stock in mind?

Comments

  1. Both are excellent stocks. Own both :-) Diversification is never a bad thing. Not to mention, past performance is no guarantee of future results. My staple holding would be S&P 500 ETF.

    ReplyDelete
    Replies
    1. Agree, both are excellent stocks, and you can't go wrong owning one or the other.

      I would also add that there are no guarantees when it comes to investing in stocks, but picking a stock in a solid blue chip company with a very long history of paying and increasing dividends, immensely increases the odds of getting better total returns.

      S&P 500 ETF or index funds are a great way to diversify and own large cap US stocks. However, not all stocks in S&P 500 pay dividends and cumulative yield has barely kept up with inflation. Would be interesting to see how these index funds do in a bear market or in a rising interest rate environment.

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    2. Both great stocks, I don't own either directly. If I had to choose, I would probably go with PG due to lower debt. Plus PG has long been on my radar but I haven't pulled the trigger on it. Like you said, you can't go wrong either way.

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  2. Thanks for writing about these two staple positions, Mr. ATM! I haven't really looked into KMB, but I've looked in to PG in the past. I think I would pick PG if I had the choice between the two. With the recent correction, I might try to start a small position if it stays around $80 or below. I guess I just am more comfortable and familiar with some of the brands under the PG portfolio. Thanks for sharing the analysis!

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    Replies
    1. You got’a go with what you are comfortable with :)

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  3. To not have to make the decision, I own both. PG is my larger of the two, so I guess my vote has to go with the money.

    One thing I would look at is the recent results on PG's business of them re positioning their brand portfolio a couple years ago. They sold off some profitable brands to get leaner and more focused. It improved margins, but reduced overall profitability if I remember correctly.

    I would want to refresh myself on that situation before making a decision. Do you have any insight on that topic Mr. ATM? Tom

    ReplyDelete
    Replies
    1. Tom, I think they are making progress on restructuring of some of the brands, albeit slow, they are moving in the right direction.

      Both KMB and PG are facing demographic headwinds as millennial prefer discounted store brands over national/global brands (according to some consumer group survey). Birth rate slow down also putting pressure on diaper sales, not that I would know. Millennials seem to be more frugal than their parents and prefer discounts over big brand merchandise.

      I think all this frugal living and FIRE stuff is going to get us at the end :)

      Seriously though, I think just like food staples, consumer product staples are facing some headwinds due to changes in consumer preferences, but both of these companies are making changes to adapt.

      Both of these companies are boring as hell, but they are rock solid and make a great core holding in any portfolio. That is if you don't mind watching them move like a turtle or watch paint dry on the wall.

      I used to own PG few years ago, but lost my patience and sold it. In hindsight, I should have kept it and should have built that position. If I had more cash, I would be buying PG in addition to adding to my KMB position. So owning both seems like a good plan.

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  4. I would diversify and hold them both. I had KMB on my radar but pulled the trigger on O in stead. I still would like to add them both to my portfolio.

    ReplyDelete
    Replies
    1. Nothing wrong with holding both. But you know, both PG and KMB compete in the same industry, so you are not really diversifying based on industry. Instead, you are just diversifying your bet across two companies in the same industry.

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