Why These 2 Recession-Proof Dividend Kings Are a Steal Right Now

Key Points

• Consumer staples makers sell products that are bought regardless of the economic environment.

• Coca-Cola is the most important non-alcoholic beverage company in the world and has an attractive 3% yield.

• Procter & Gamble is one of the biggest consumer products companies on the planet and has a nearly 2.8% yield.

• 10 stocks we like better than Coca-Cola ›

Stocks in the S&P 500 offer an underwhelming average dividend yield of 1.2%. The average consumer staples company has a 2.5% yield. You can beat both of those numbers with Dividend King stalwarts like Coca-Cola (NYSE: KO) and Procter & Gamble (NYSE: PG). The best part is that both offer recession-resistant businesses that have stood the test of time. Here's why each of these reliable dividend stocks could be a steal today.

Why buy consumer staples stocks?

The consumer staples sector is populated with businesses that sell necessity items. The products are usually relatively low-cost compared to the benefits they offer, and there tends to be strong brand loyalty among consumers. You aren't going to stop buying food or deodorant if there is a recession. And while a deep recession may make you consider trading down to lower-cost alternatives, you will probably think twice about giving up your preferred choices.

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This is why the consumer staples sector is considered recession-resistant. Two of the best-known consumer staples makers are Procter & Gamble and Coca-Cola. In fact, they are both among the largest publicly traded consumer staples businesses on the planet, holding the No. 3 and No. 4 spots, respectively.

There are notable differences between Coca-Cola and Procter & Gamble. Coca-Cola makes beverages, which fall into the broader food category. Procter & Gamble makes personal care products from toilet paper to toothpaste. They don't compete and, thus, could be purchased together to provide broad exposure to the consumer staples sector. In fact, it might be better for diversification purposes to buy them both rather than to pick just one or the other.

Why buy Coca-Cola and Procter & Gamble today

Their status as Dividend Kings is the first big reason to like these two consumer staples giants. The last 50-plus years have seen many recessions, including the painfully deep Great Recession, and not a single one stopped Coca-Cola or Procter & Gamble from steadily increasing their dividends. That's dollars and cents proof of the resilience of their businesses.

Then there's the yields each is offering. Coca-Cola's yield is currently a bit over 3% while Procter & Gamble's yield is roughly 2.8%. They are both multiple times larger than the scant 1.2% yield on offer from the S&P 500 index and higher than the 2.5% yield from the average consumer staples stock.

But the real story here is that both of these highly respected businesses are currently trading at what look like attractive valuations. Coca-Cola and Procter & Gamble have price-to-sales, price-to-earnings, and price-to-book value ratios that are below their five-year averages. To be fair, neither stock is shockingly cheap. But the truth is that they don't often go on sale at all, so a reasonable price is a steal for these iconic companies.

Buying good businesses at reasonable prices sounds familiar

Warren Buffett has long owned Coca-Cola stock in the Berkshire Hathaway portfolio. This is notable because Buffett's investment approach is widely followed on Wall Street, with the Oracle of Omaha focused on buying good businesses when they are attractively priced. It looks like that is the case for both Coca-Cola and Procter & Gamble today.

But there's one more piece to Buffett's success: He buys and holds. The goal is to benefit from the long-term growth of the businesses he owns. If you take that approach with Coca-Cola and Procter & Gamble, you'll likely end up pleased with the outcome. And what today looks like a reasonable to slightly cheap price could, in hindsight, end up being a downright bargain over the long term.

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Reuben Gregg Brewer has positions in Procter & Gamble. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.