Procter & Gamble(NYSE: PG), 3M(NYSE: MMM), and PetMed Express(NASDAQ: PETS) are all due to report quarterly numbers in January, but they share more than that coincidence. The companies sell everyday items and offer above-average dividends. On top of that, all three companies' shares declined in 2022.
With declining valuations and solid financials, they are now worth taking a second look at this month.
3M: Its strengths will show through
Investors have shied away from 3M this year because it is facing lawsuits regarding earplugs it sold to the military and environmental suits for its use of per- and polyfluoroalkyl substances (PFAS), which it said it is phasing out by 2025.
However, considering the company's sound financial health, the shares' more than 33% decline in 2022 provides an opportunity to get in on a solid dividend stock with sound financials that is trading for a little more than 10 times earnings.
The company is scheduled to report fourth-quarter earnings on Jan. 23. Through nine months, revenue was $26.2 billion, down 2% year over year, but earnings per share (EPS) were $9.15, up 17.1% over the same period last year.
The company is facing some other headwinds, led by decreased sales of disposable respirators and supply chain issues. But its size and diversity (93,000 employees spread across 87 countries) insulate it from a pronounced decline. It operates in four segments: Safety & Industrial, Transportation & Electronics, Healthcare, and Consumer.
A big bonus for 3M stock is its quarterly dividend, which it raised by 1% this year to $1.49 per share, for a yield of 4.96%. It's the 64th consecutive year the company has boosted its dividend. The payout ratio is a bit high, though, at 87%. So that bears watching and will likely mean smaller increases until revenue improves.
P&G: Positioned to do well in a recession
Procter & Gamble is due to report fiscal 2023 second-quarter earnings on Jan. 19. Shares are down a little more than 7% this year, but the company, which ended its 2022 fiscal year in June, has posted five consecutive years of improved revenue and three consecutive years of EPS growth.
Its wide range of consumer products includes Head & Shoulders shampoo and the fiber supplement Metamucil. The company sells the everyday items that people keep buying, even in a recession.
In the first quarter of 2023, P&G reported revenue of $20.6 billion, up 1% year over year, and EPS of $1.57, down 2%. The company expects as much as a 3% drop in revenue this year, citing unfavorable exchange rates, higher costs, and higher freight expenses.
All three impediments are the result of macroeconomic conditions that the company can adjust to in the long run, though, and much of those concerns are already baked into the stock's price. The company trades at around 26 times earnings.
Procter & Gamble raised its quarterly dividend by 5% this year to $0.91, for a current yield of around 2.91% with a payout ratio of 67%, which is only slightly high. The company has raised its dividend for 66 consecutive years.
PetMed Express: Looking for a turnaround
Online pet pharmacy PetMed Express has seen its shares decline more than 32% so far in 2022. In the second quarter, the company reported revenue of $65.4 million, down 3% year over year, with EPS of $0.13 compared to $0.31 a year ago. The company is scheduled to report its third-quarter numbers on Jan. 23.
Despite those dire numbers, the company is seeing progress. Facing competition from the Autoship program of Chewy, PetMeds launched its AutoShip & Save service in July 2021, and by the end of this past September, the program represented 39% of the company's sales, up from 34% in the prior quarter.
Owners don't usually skip their pets' medications, even during a recession. And the long-term trend of increased pet ownership works in the company's favor. According to a report by Fortune Business Insights, the global pet care market is expected to grow from $207.9 billion in 2020 to $325.74 billion by 2028, for a compound annual growth rate of 5.6%.
Unlike the previous two stocks, PetMed Express' dividend history is relatively short, but the company has increased it for 13 consecutive years. It currently sits at $0.30 per quarter, which works out to a yield of around 6.7%. The problem is the payout ratio: 125%, which isn't sustainable unless the company can grow revenue.
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Jim Halley has positions in 3m. The Motley Fool has positions in and recommends Chewy. The Motley Fool recommends 3m. The Motley Fool has a disclosure policy.
