The past few years have been trying ones for PZ Cussons (LSE: PZC), as trading in Nigeria, the consumer goods firm’s largest market by sales, has suffered due to rampant inflation and weak economic growth. Yet Cussons continues to perform quite well in other more profitable markets. And with unimpeachable non-cyclical characteristics, great growth potential, and a 3.65% dividend yield, I think it’s one stellar stock to consider for conservative long-term investors.
Thanks to selling everyday necessities, such as soap and shampoo via well-known brands like Carex, Imperial Leather and Original Source, Cussons’ defensive attributes are very sound. That should be of great comfort to nervous investors wondering when the next economic downturn will hit.
On top of relatively non-cyclical sales, the group also boasts potentially-transformative long-term growth prospects, thanks to its exposure to emerging markets, including Nigeria and Indonesia, that boast fast-growing populations and bumper prospects for economic growth. Although Nigeria is going through rough macroeconomic period right now, its consumers are still buying Cussons’ products in huge volumes and the company has done well to grow market share during this tough time.
So, while group-wide adjusted operating profit dropped 15.9% in constant currency terms last year to £85.7m, due to Nigerian weakness, I still see dramatic long-term potential from access to Africa’s largest economy with a fast-growing population that the UN reckons will make it the third largest country globally by 2050.
Elsewhere, highly profitable operations in the UK ran into headwinds last year as operating profits stayed flat but still did their part to ensure earnings per share came in at 11.41p per share, more than covering the 8.28p full-year dividend payout.
With management rolling out new products and refreshed marketing campaigns in the UK, I reckon Cussons’ profits should regain positive momentum soon. Coupled with long-term growth potential in emerging markets, a four-decade-long history of dividend hikes, and its defensive nature, this makes PZ Cussons one FTSE 250 stock I think investors should consider right now.
A dividend to milk for all its worth
Another mid-cap dividend dynamo that should withstand the next economic downturn well is Dairy Crest Group (LSE: DCG). This defensive nature comes from selling everyday dairy staples, such as the UK’s leading cheese brand, Cathedral City, and the country’s second most popular butter spread, Clover.
Against fragmented markets, both of these brands continue to take market share and drive revenue and profit growth for Dairy Crest. Last year, revenue rose 10% to £456.8m, while adjusted pre-tax profits bumped up 3% to £62.3m.
Looking ahead, I expect further market share gains to come as management invests in marketing, brings new brands to market, and recently raised capital to expand production from 54,000 tonnes to 77,000 tonnes of cheese annually. The company’s trading update for the six months to September was released this morning and certainly suggests this is taking place as management disclosed a year-on-year increase in revenue and profits.
This forward progress, combined with the recent equity issuance that pushed net debt down to 2.1x EBITDA, is great news for the company’s already-impressive 4.9% dividend yield that is covered by earnings.
While Dairy Crest is vulnerable to swings in the price of dairy inputs, the group is well-run and is making good progress in profitable growth. Adding in its stellar dividend and significant defensive attributes, makes me believe Dairy Crest is one stock nervous investors should keep an eye on.
Ian Pierce has no position in any of the shares mentioned. The Motley Fool UK owns shares of PZ Cussons. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.