The consumer sector was beaten down in 2022. That’s because many Americans began to pull back spending due to rising inflation. But there is some indication that demand remains steady. And although there is still a risk premium in equities, it can be time to think about dividend stock picks for a consumer sector rally.
This morning, the latest Consumer Price Index came in slightly cooler than expected. That follows up on last week’s Federal Reserve meeting. The Fed raised rates but issued its first signal that it may be ready to pause its campaign of interest rate hikes.
In a market where the bulls and bears are playing tug-of-war, every piece of data is critical. That’s why the most critical piece may have come from the April jobs report. The takeaway from that is that Americans are still working heading into summer. And if the news gets better over the summer, this rally could gain steam. Here are three dividend stocks that are well-positioned to deliver a strong total return for a summer rally.
|Travel + Leisure
Colgate-Palmolive (NYSE:CL) leads off this list of dividend stock picks for a consumer sector rally. The consumer staples giant offers shareholders heads you win, tails you don’t lose scenario.
By that I mean, if the rally gets legs, Colgate-Palmolive will likely improve on its “average” 50-ish percent revenue growth over the last three years. And if the rally is just a head fake, consumers still need the company’s products.
In its most recent earnings report, Colgate-Palmolive beat on the top and bottom lines. But what was more interesting is that the numbers closely approximated the results from the prior year. At a time when many analysts continue to forecast an earnings recession, that shouldn’t be overlooked. The consumer staples stock is not cheap. It currently trades for around 42x earnings. But the company is expected to post earnings growth of over 13%. Since earnings growth is one of the strongest predictors of stock price movement, that’s bullish for investors.
Although CL stock is flat in 2023, it’s up over 5% in the last 12 months. And with the company’s dividend yield of 2.38%, CL stock has kept shareholders ahead of inflation. Not only that, but Colgate-Palmolive is a dividend king that raised its dividend for the 61st consecutive year in March 2023.
Travel + Leisure (TNL)
Revenge travel shows no signs of abating. That provides the perfect backdrop for investors to consider investing in Travel + Leisure (NYSE:TNL). The company is best known for its namesake magazine, but don’t let that fool you. This is a mid-cap stock that should benefit as travel remains the itch that consumers need to scratch.
One reason that TNL stock got on my radar was the projected earnings growth that is expected to come in at 14.44%. That comes after the company beat on the top and bottom lines in its first quarter 2023 earnings report in April. Not only that, but the numbers were better on a year-over-year basis reflecting the strength of the travel sector. Unquestionably, Travel + Leisure has been a laggard. The stock is down over 29% in the last year. But analysts give the stock a bullish 40% upside that comes with a dividend that currently has an attention-getting yield of just over 5%.
The company was listed among Newsweek’s Most Trustworthy Companies in America in 2023. The company caters to a more affluent demographic that is looking for unique experiences. With demand expected to remain strong, TNL stock is one to watch particularly with a P/E ratio of just 8x earnings.
Cedar Fair (FUN)
The last stock on this list of dividend stock picks for a customer sector rally is Cedar Fair (NYSE:FUN). The company operates a portfolio of amusement parks, water parks, and hotels. The business suffered during the pandemic, but revenue soared in the second half of 2022.
That also helped the company return to profitability. And in February, Cedar Fair posted year-over-year revenue and earnings growth. That’s particularly encouraging because the first quarter is typically the company’s weakest as it’s winter in many areas in which the company does business. And Cedar Fair is already projecting record sales and adjusted EBITDA in 2023.
With interest rates expected to be higher for longer, many middle-class families will be looking for economical vacation alternatives. Analysts agree many are expecting demand for theme parks to be resilient amidst a mild recession. The FUN stock trades at just over 9x earnings and the company is projected to grow earnings by 15% in 2023. Add in a dividend that returned in 2022 and currently yields 2.89% and you have the ingredients for one of the best dividend stocks for a consumer sector recovery.
On the date of publication, Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.