These Market Signals Alarm Me, but I Still See Profit Potential in These 3 Consumer Stocks

Investors have compelling anecdotal evidence that they should be cautious about the market. The Shiller P/E ratio, an indicator of the market’s long-term valuation, is at 41, its highest level since the dot-com bubble.

Moreover, Warren Buffett’s former company, Berkshire Hathaway, holds almost $397 billion in liquidity, a record level, and more than the nearly $330 billion value of its stock portfolio. That could indicate it is accumulating cash in anticipation of a discounted market.

However, investors should note that Berkshire remains heavily invested in stocks, and certainly, some stocks can offer value in the current market, particularly among dividend payers. Knowing that, these three consumer names are probably a good place to invest cash while earning generous dividend payments.

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1. Realty Income

**Realty Income **(O +0.24%) leases single-tenant properties to many of the world’s best-known corporations. Companies ranging from Walmart to FedEx to Wynn Resorts operate businesses in properties owned by this real estate investment trust (REIT).

That client base delivers steady revenue and a 99% occupancy rate. With that, the company continues to develop and acquire additional properties.

That base also helps Realty Income maintain its reputation as the “monthly dividend company.” True to that name, it has made a payout every month since 1994, increasing the amount at least once per year. At $3.25 per year, its dividend yield is 5.1%, far above the 1.1% average for the S&P 500 (^GSPC +0.84%).

Fortunately, it earned $4.25 per share in funds from operations (FFO) income, a measure of a REIT’s free cash flow. That likely means it can continue to support its dividend and fund payout hikes.

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NYSE: O

Realty Income

Today’s Change

(0.24%) $0.15

Current Price

$61.94

Key Data Points

Market Cap

$58B

Day’s Range

$61.59 - $62.67

52wk Range

$54.38 - $67.94

Volume

264K

Avg Vol

6.1M

Gross Margin

50.46%

Dividend Yield

5.22%

Moreover, while investors may focus on its 55 P/E ratio, it sells at a price-to-FFO ratio of around 15, indicating the stock is much cheaper than it might appear. That increases the likelihood the stock will move higher over the long term, and its dividend should pay shareholders generously in the meantime.

2. Clorox

**Clorox **(CLX +0.05%) is a consumer staples stock that has struggled to gain respect in recent years. In addition to its flagship bleach brand, the company owns Kingsford charcoal, Hidden Valley salad dressing, and Burt’s Bees personal care products.

Clorox stock surged during the pandemic amid temporarily high demand for cleaning supplies, but unfortunately, a 2023 cyberattack and implementation of a new CRM system led to stock selling. More recently, rising input costs squeezed margins, forcing a downward revision in sales and earnings forecasts.

However, Clorox has a streak of annual dividend increases spanning decades. Consequently, its $4.96-per-share yearly dividend yields about 5.6%.

Admittedly, its $380 million in free cash flow over the trailing 12 months was well short of the $602 million in dividend costs for the period. Still, a $476 million venture termination payment, a one-time charge, caused that shortfall. Furthermore, since abandoning the streak of payout hikes would hurt the stock’s reputation, the company will likely maintain the streak despite its struggles.

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NYSE: CLX

Clorox

Today’s Change

(0.05%) $0.05

Current Price

$92.16

Key Data Points

Market Cap

$11B

Day’s Range

$91.21 - $93.42

52wk Range

$84.70 - $138.23

Volume

3.3M

Avg Vol

2.6M

Gross Margin

43.70%

Dividend Yield

5.38%

Furthermore, Clorox’s stock is also cheap. Amid its troubles, its P/E ratio has fallen to 14, well below the S&P 500 average of 31. Assuming investors capitalize on that discounted price, the strength of Clorox’s brands should bring stability, and the dividend will likely deliver increasing returns as investors wait for improvement.

3. Kimberly-Clark

**Kimberly-Clark **(KMB 1.26%) has long maintained its stability with brands like Kleenex, Huggies, and Cottonelle. Moreover, it is about to expand its reach with the upcoming merger with Kenvue, formerly a Johnson & Johnson division. This buyout brings famous brands such as Tylenol, Listerine, Neutrogena under its umbrella.

The Kenvue merger may make some investors nervous. Kimberly-Clark’s $32 billion market cap is well below the $48.7 billion cost of the deal, meaning the company will almost certainly have to issue shares to close the deal.

Concerns about the deal’s cost have likely contributed to a significant decline in Kimberly-Clark stock. However, the lower stock price may indicate investors have priced in much of the upcoming stock dilution. In addition, many investors believe synergies, the disposition of lower-margin businesses, and the company’s financial strength will make the deal work.

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NASDAQ: KMB

Kimberly-Clark

Today’s Change

(-1.26%) $-1.25

Current Price

$98.31

Key Data Points

Market Cap

$33B

Day’s Range

$98.21 - $100.10

52wk Range

$92.42 - $144.31

Volume

3.2M

Avg Vol

4.9M

Gross Margin

35.93%

Dividend Yield

5.15%

Fortunately, its $5.12-per-share dividend has increased for 54 straight years, making it a Dividend King, or a company that has raised its annual dividend for at least 50 consecutive years. The company yields 5.2%. Also, its $1.8 billion in free cash flow over the trailing 12 months was just above the $1.7 billion dividend cost, indicating it can still afford its payout.

Additionally, the pullback in the stock price has taken its P/E ratio to just 15. That low valuation buys investors a stock that owns many of America’s most respected consumer brands. With more brands coming under its control following the merger, Kimberly-Clark will likely protect investor wealth while continuing to raise its dividend.