The U.S. economy is recovering from the pandemic, and investors are hunting for dividend stocks in industries with higher-than-average growth. Consistent revenue gains — and a boost from pandemic-fueled adoptions — have made pet stocks the perfect opportunity for strong dividend returns.
Consumers are spending more money than ever on their pets. Pet spending reached $100 billion in the U.S. in 2020, showing consistent year-over-year (YOY) growth. The industry includes consumables like food, but also things like toys, grooming and veterinary care.
About two out of every three households in the U.S. own at least one pet. As a result, the pet product market is massive and doesn’t suffer from a concentration risk. And as more and more consumers buy pets, spending on a per-pet basis continues to rise and the market grows in a virtuous cycle.
Some of the strongest pet stocks see most of their gains from annual food spending. On average, cat and dog owners spend about $300 on pet food and treats each year. Additionally, a growing number of pet owners will spend extra money on food that is organic or better-suited for their pets’ needs. This should boost per-pet spending over time, which will lead to further growth in the industry.
The following companies have pet-related segments that are leading their overall growth. These three pet stocks –including a a Dividend King — all pay dividends to shareholders and have a positive total-return outlook:
Pet Stocks: PetMed Express (PETS)
First is PetMed Express, a pet pharmacy that operates in the U.S. The company offers prescription and non-prescription medications for pets. They also provide other pet health products focused on flea and tick control, bone and joint care, vitamins, treats and nutritional supplements.
The company recently concluded its fiscal year, and the results showed strong growth. PetMed sales grew by 9% for the entire year, driven by a 10% rise in reorder sales. Last year, it acquired 443,000 new customers — an increase from the prior year’s 421,000. Earnings-per-share (EPS) increased to $1.52. Along with the financial results, the company announced a 7% dividend increase.
Investors looking to maximize returns can focus on stocks with reasonable valuations, future growth potential and solid dividend yields. PetMed checks all three boxes. We expect the stock to generate total annual returns above 10% through future EPS growth, dividends and an expanding valuation multiple.
PetMed Express is well-positioned in the growing subsector of online pet product sales; the company operates no physical retail stores. Additionally, it sells a wide variety of consumables that naturally create repeat customers. With pet spending on the rise, we expect PetMed Express to match this year’s 8% annual growth rate for the foreseeable future.
The company also has a very strong dividend yield of 3.7%. The growth we forecast for the company’s earnings should help it raise the payout over time. PetMed Express looks poised to continue its 13-year streak of dividend increases.
General Mills (GIS)
Next up is General Mills, a company best known for its wide array of cereal and breakfast products. The company purchased Blue Buffalo back in 2018 for $8 billion, instantly gaining access to the company’s impressive slate of natural pet foods.
General Mills’ most recent quarterly results showed 14% volume growth YOY for the pet food business. The segment continues to lead in terms of growth for General Mills.
Last month, the company announced that it’s buying Tyson Foods’ pet treat business for a net consideration of $975 million. This should bolster General Mills’ competitive position in the pet food sector and position it for further growth.
We currently expect 3% total annual EPS growth from General Mills. But its leverage in the pet foods market is quite clear, so the company should also benefit from higher pet food spending in the years to come. High single-digit total returns are expected for GIS stock, mostly from modest EPS growth and its 3.3% dividend yield.
Pet Stocks: Colgate-Palmolive (CL)
Colgate-Palmolive is best known for its toothpastes and soaps. However, the company also owns Hill’s Pet Nutrition, a line of pet food products sold exclusively online or through specialty retailers and veterinary offices. The brand is billed as a premium, healthier alternative to mainstream pet foods.
Hill’s now brings in more than one-sixth of Colgate-Palmolive’s total revenue. In the most recent quarter, the brand saw 9.5% total sales growth, easily outpacing the 6% overall growth of the total company. Organic sales were up 7%, and Hill’s saw a 3% gain in volumes and a 4% gain in pricing. The segment also saw a 2.5% tailwind from foreign exchange translation.
We expect Hill’s steadily-growing revenue will help Colgate-Palmolive produce a 5% annual growth rate for the foreseeable future.
Colgate-Palmolive has long been a reliable dividend growth stock, having raised its dividend for over 50 consecutive years. As a result, the company is on the exclusive list of Dividend Kings. Shares currently yield 2.2%.
On the date of publication, Bob Ciura did not have (either directly or indirectly) positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Bob Ciura has worked at Sure Dividend since 2016. He oversees all content for Sure Dividend and its partner sites. Prior to joining Sure Dividend, Bob was an independent equity analyst. His articles have been published on major financial websites such as The Motley Fool, Seeking Alpha, Business Insider and more. Bob received a bachelor’s degree in Finance from DePaul University and an MBA with a concentration in investments from the University of Notre Dame.