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3 Dividend Kings That Should Crush The Broader Market in 2022

The Motley Fool
The Motley Fool
 2022-01-24

Over the past several weeks, investors have been fleeing premium-laden growth stocks in favor of high-quality defensive plays. This flight to safety is being driven by the dual headwinds of historically high inflation rates and the prospect of tighter monetary policies from the Federal Reserve in 2022. Nowhere is this trend more apparent than in the select group of companies known as Dividend Kings , which is an elite group of S&P 500 companies that have boosted their dividends for a minimum of 50 consecutive years. Speaking to this point, the best-performing Dividend King stocks of late have all been in highly defensive sectors such as consumer goods.

As the Federal Reserve is expected to roll out multiple interest rate increases this year in an attempt to curtail inflation, this ongoing mass capital migration toward defensive sectors is likely to continue for the foreseeable future. This trend, in turn, should be a major catalyst for shares of consumer-goods giants Colgate-Palmolive (NYSE: CL) , Hormel Foods (NYSE: HRL) , and Procter & Gamble (NYSE: PG) in 2022. Here's why these three Dividend King stocks ought to deliver market-beating returns for shareholders this year.

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Image source: Getty Images.

Colgate-Palmolive: A household name

Colgate-Palmolive is a quintessential defensive stock. The consumer-goods titan sports scores of market-leading oral care, household cleaning supply, and pet nutrition brands. Colgate's diversified revenue streams are thus insulated from most, if not all, types of macroeconomic headwinds. The company's deep competitive moat, in fact, is almost certainly a key reason investors have bid up its shares by a handsome 10.7% since the start of the fourth quarter of 2021.

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CL data by YCharts

Why is Colgate stock poised to continue its recent bull run? The company offers a respectable 2.15% dividend yield on an annualized basis at current levels. Moreover, its payout ratio is only 56.7%, implying that the consumer-goods giant should have no trouble raising its dividend yet again in the near future.

Now, Colgate's forward-looking price-to-earnings ratio of almost 24 isn't exactly cheap and its meager top-line growth forecast for 2022 of 3% is far from ideal for a stock with premium valuation. But the high degree of safety afforded by its rock-solid dividend program should be enough to drive its shares even higher in the coming weeks and months.

Hormel Foods: Don't miss out on this global food giant

Hormel Foods is a leading global food company. The company's product portfolio is home to numerous iconic brands such as Skippy, Spam, and Hormel Black Label. Hormel's business is thus insulated against most macroeconomic pressures. People, after all, aren't going to stop buying peanut butter and Spam because of inflation or rising interest rates.

On the dividend front, the grocery giant offers an annualized dividend of 2.1%. That's about average for its immediate peer group. Hormel's dividend is also extremely well funded, as seen in its meager payout ratio of only 59%. And as Hormel's top line is forecast to rise by a healthy 7.1% in 2022, the company can definitely afford to keep boosting its dividend on a regular basis .

Like Colgate, however, Hormel's shares aren't cheap. Underscoring this point, the global grocery giant's shares have risen by almost 20% since Oct. 1. As a result, the food maker's stock is now trading at a hefty forward-looking price-to-earnings ratio of 24.4. This premium valuation, though, shouldn't put off conservative investors. Hormel's elite dividend program ought to keep its shares moving northward amid this ongoing flight to safety, despite its top-shelf valuation.

Procter & Gamble: A highly diversified consumer-goods titan

Procter & Gamble is global titan in the world of branded consumer packaged goods. The company sports a vast array of top brands such as Head & Shoulders, Old Spice, Pantene, and Safeguard. So, like Colgate and Hormel, P&G's business is also well protected against almost all forms of macroeconomic headwinds. In short, shampoo and deodorant aren't the types of everyday use items that people skimp on because of inflation.

At current levels, P&G's stock comes with a 2.1% annualized dividend yield, which isn't world-beating by any means, but it is in line with the company's closest peers. P&G's dividend is also extremely safe because of its relatively low 59.9% payout ratio. Equally as important, the consumer-goods titan should also be able to cover future dividend increases. After all, Wall Street expects its top line to rise by a respectable 4% annually over the next two years.

On the valuation side of things, P&G's shares are trading at a rather hefty forward-looking price-to-earnings ratio of 27.4. The reliability and overall strength of its long-running dividend program, though, should keep its share price marching higher for the remainder of the year.

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George Budwell has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .

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