Walgreens, Kraft Heinz, and 3 Other Stocks That Should Hold Up in a Recession

The sector has lagged behind the broader market this year, but still sells at a slight premium. The
Consumer Staples Select Sector SPDR Fund
(ticker: XLP) trades at 20.6 times this year’s profit estimates, versus nearly 19 times for the SPDR S&P 500 ETF Trust (SPY).

For this screen, Barron’s looked for consumer staples stocks in the S&P 500 that have a price-earnings valuation under 15 (based on this year’s profit estimates from FactSet) and a yield of at least 3%.

The screen revealed five companies: Altria Group (MO),
Walgreens
Boots Alliance (WBA),
Kraft Heinz
(KHC),
Conagra Brands
(CAG) and
Molson Coors Beverage
(TAP).

Altria Group, maker of Marlboro cigarettes, yields 8.4%, the highest among the stocks in this screen.

A yield that high can raise concerns about the safety of the dividend, and the company is dealing with secular declines in cigarette volumes. The company is trying to transition to smokeless products.

However, the company’s CEO, Billy Gifford, recently told Barron’s that maintaining the dividend was extremely important.

“It’s a top priority for investors and for us,” he said.

The stock is down about 0.7% this year, including dividends.

Walgreens Boots Alliance yields 5.4%, and the stock’s return this year is about minus 3%. But there are signs that things are moving in the right direction.

For its most recent fiscal quarter, the company notched earnings of $1.16 a share. That was lower than the $1.59 a share it earned a year earlier, but it was a few cents above the consensus profit estimate.

One thing that’s reassuring about the company’s dividend is that it’s a member of the S&P 500 Dividend Aristocrats Index. Its 67 members have paid out a higher dividend for at least 25 straight years.

Walgreens Boots Alliance, which provides healthcare and operates retail pharmacies, has raised its dividend for 47 straight years.

Kraft Heinz, however, doesn’t boast such a long track record of dividend growth. In 2019, the company slashed its payout as it sought to improve its balance sheet.

The company has said in recent investor presentations that t is committed to maintaining its dividend while investing in the business.

The quarterly dividend has stabilized 40 cents a share, the level to which it was cut in 2019. The stock, which yields 4.2%, has returned about minus 4%.

Meanwhile, shares of Conagra Brands, which yield 3.5%, have returned about minus 2% year to date.

Its brands include Duncan Hines, Reddi-wip and Hunts. The company targets a payout ratio—or the percentage of earnings paid out in dividends—of 50-55%. That is a reasonable level and gives the company room to grow its dividend over time.

In its most recent fiscal year, which ended last May, Conagra Brands paid out about half of its earnings in dividends.

The company in recent years has declared a dividend increase in July, most recently in 2022 when it boosted by nearly 6% to 33 cents a share from 31.25 cents on a quarterly basis.

Molson Coors Beverage (TAP) yields 3.2%; its stock has returned about 2% this year.

The company has boosted its dividend twice since reinstating it in 2021, most recently in February to 41 cents a share from 38 cents on a quarterly basis.

“Our intention is to sustainably increase the dividend,” the company’s chief financial officer, Tracey Joubert, told analysts during the company’s fourth-quarter earnings call in February.

Last year the company paid out $1.52 a share of dividends on earnings of $4.10.

Write to Lawrence C. Strauss at [email protected]