Here’s Why Dividend Kings Coca-Cola, Procter & Gamble, and Colgate-Palmolive Are Hitting 52-Week Highs Following Midterm Election Results
Investors are piling into dependable dividend stocks following the midterm elections. But after their latest rallies, are these three Dividend Kings still worth buying?
Political uncertainty has led investors to seek stability, pushing shares of Coca-Cola, Procter & Gamble, and Colgate-Palmolive toward new 52-week highs after midterm elections. These Dividend Kings, known for their 50+ years of consecutive dividend increases, sell everyday essentials, making them appealing during market volatility.
However, their rising share prices raise questions about their investment value. Democrats won control over Congress and the Senate, leading to a divided government and potential legislative gridlock. Despite this political uncertainty, consumer-staples companies are seen as relatively insulated from political outcomes, as people need to buy essentials like beverages, toothpaste, and soap regardless of the ruling party.
While political uncertainty may have contributed to the stocks' recent gains, their latest earnings reports provide another reason investors are willing to pay premium prices for these elite dividend stocks. Coca-Cola reported a 7% revenue growth and an 11% surge in comparable earnings per share (EPS). The company raised its full-year EPS growth outlook to at least 11% to around $3.33 per share.
However, Coca-Cola is trading at a premium price of nearly 29x earnings, which is higher than the S&P 500's 23.5x earnings multiple. Procter & Gamgle faced cost and demand headwinds, resulting in a 4% growth in net sales and a small increase in core EPS. The company anticipates continued cost pressures to weigh on its core EPS this year.
Colgate reported strong sales growth of 4.6% and a 7% increase in its base business EPS. The company also reported improving margins, boosting its full-year base business EPS growth forecast to 5%-7%, or around $3.91 per share at the midpoint. Despite the strong fundamentals, all three stocks trade at premium valuations with earnings multiples higher than the S&P 500's.
To generate attractive returns, these stocks would need to achieve high-single-digit EPS growth while maintaining their premium valuation multiples. Investors may want to wait for better buying opportunities rather than chasing these stocks at their current highs.
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