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Johnson Controls Inc (JCI), Williams-Sonoma, Inc. (WSM): 4 Consumer Cyclicals With Income & Growth

The consumer discretionary sector is a pro-cyclical sector that gets a lift when the market outlook brightens due to improved prospects for economic growth. Exactly for that reason, this sector has been particularly robust this year, outperforming the overall market. However, according to FactSet, the consumer cyclical sector, with the average forward P/E of 16.9x, is also the sector with the highest forward earnings multiple in the S&P 500. Still, the sector will lead all S&P 500 sectors with forecast revenue growth of 6.7% in 2014 and with the third-highest rate of EPS growth, at 17.6%.

Below is a closer look at four dividend-paying stocks in the consumer discretionary/cyclical sector with yields above 2% and positive long-term forecast EPS growth. This list should provide growth-oriented investors a good starting point for further research; take a look at one particular market-beating strategy here.

Johnson Controls Inc (NYSE:JCI)

Johnson Controls

Johnson Controls Inc (NYSE:JCI), the largest U.S. auto supplier and a major play on emerging markets, has a diversified exposure to a few growth industries, including automotive and housing, given that, in addition to auto parts, it also produces heating and air-conditioning products and lithium-ion batteries. The company has seen poor revenue and earnings performance recently, mainly due to the weak European auto market. However, the second fiscal quarter is generally viewed as an inflection point, as automotive segment restructuring initiatives, strong seasonality and cost and pricing initiatives in the building efficiency division, and the positive outlook for the power solutions segment support stronger second-half performance.

The company’s automotive operations should rebound with improvements in Europe and the continued strength in the Unites States. Its seating production should receive a boost from backlog growth and Asian strength. The outlook for its HVAC operations is bullish, as the company expects annual sales growth between 8% and 10%, driven by market share gains and emerging market expansion. Its battery division is expected to deliver sales growth of between 10% and 15% annually, mainly on China and emerging market growth, as well as on improved North American and European aftermarket battery demand. In general, the company stands to benefit from energy efficiency trends. It also sees margin expansion in all its segments in the medium term.

Johnson Controls Inc (NYSE:JCI) has paid consecutive dividends to investors since 1887, and currently offers a dividend yield of 2.1% on a payout ratio of 29% of the analysts’ current-year EPS estimate. The company’s capital expenditures are moderating, which should help the company reach the $1.2-billion target in free cash flow before dividends by year-end. Johnson Controls Inc (NYSE:JCI)’ liquidity and cash position may also improve in the coming months if it decides to divest its automotive electronics business, for which it has already received expressions of interest. Shoring up its balance sheet, the company plans to reduce its net debt by $1 billion by the end of this year.


Williams-Sonoma, Inc. (NYSE:WSM), a specialty home furnishings retailer, has seen tremendous growth in recent years. Its prospects are supported by the housing recovery and the company’s innovation in the form of new brands and products. In addition, the popularity of healthy living choices, including cooking at home trends, plays out well for this “Tomorrow’s Retailer,” as the company brands itself. As a result, Williams-Sonoma, Inc. (NYSE:WSM)’s financial performance has been robust. Its first-quarter financial results were its best first-quarter results in history.

Williams-Sonoma, Inc. (NYSE:WSM) bucked the general trend of robust EPS expansion without meaningful revenue growth by producing strong top-line growth of 9% year-over-year in the first quarter—with comparable brand revenue growth projected to between 4% and 6% this year. Over the next three years, its revenues should increase in mid-to-high single-digits, which should help drive low double-digits to mid-teens growth in adjusted EPS. An added support to the bottom line will come from share repurchases, given its three-year $750-million repurchase program announced back in March 2013.

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