Here’s Why Dividend Kings Coca-Cola, Procter & Gamble, and Colgate-Palmolive Are Hitting 52-Week Highs Following Midterm Election Results

Political uncertainty can send investors searching for stability. That's helping push shares of Coca-Cola (NYSE:KO), Procter & Gamble (NYSE:PG), and Colgate-Palmolive (NYSE:CL) toward fresh 52-week highs following the midterm elections. All three are Dividend Kings (companies with 50 or more years of annual dividend increases) that sell everyday necessities, making them attractive places to seek shelter from market volatility.

However, their rising share prices create an important question: Are these dependable dividend stocks still worth buying at their current prices?

Image source: Coca-Cola.

Why investors are buying Dividend Kings

Democrats won control over Congress and the Senate, creating a divided government with President Trump in the White House. That increases the likelihood of legislative gridlock.

Many investors view consumer-staples companies as relatively insulated from political outcomes. Customers need to continue purchasing beverages, toothpaste, soap, and other household necessities regardless of which party controls Congress.

While political uncertainty might help explain why these stocks are soaring, their latest earnings reports provide another reason investors are willing to pay premium prices for these elite dividend stocks. The question is whether their current prices leave enough room for attractive future returns.

Coca-Cola: Excellent execution, expensive shares

Coca-Cola's latest quarterly results showcased the quality of its business. The beverage giant's revenue grew 7% while its comparable earnings per share (EPS) surged 11%. The company delivered solid volume growth while also continuing to pass through price increases. That strong quarter enabled Coca-Cola to raise its full-year outlook. It now expects to deliver at least 11% comparable EPS growth to around $3.33 per share.

The problem with Coca-Cola is that it trades at a premium price. With its share price surging to about $96 following the election, the company trades at nearly 29x earnings. For perspective, the S&P 500 currently trades at about 23.5x earnings.

P&G: Dependability comes at a premium

P&G has been battling cost and demand headwinds. That's why the consumer products giant's net sales only grew 4% in its fiscal 2027 first quarter, while its core EPS rose just 1%. The company expects continued cost pressures to weigh on its core EPS this year, which it anticipates will increase only 1.5% at the midpoint to around $7.00 per share. It sees higher raw material, energy, transportation, and other costs creating an 11% drag on EPS this year.

With its stock price surging over the past month, P&G now trades at more than $167 per share. That puts its valuation at nearly 24x earnings. While that isn't an unreasonable valuation for a company of P&G's quality, it provides little margin of safety if growth remains sluggish.

Colgate-Palmolive: Better growth, but also expensive

Colgate's latest quarter was strong for a consumer products company. Net sales rose 4.6%, while the EPS of its base business increased 7%. Whereas P&G is facing some margin pressure, Colgate reported improving margins. That enabled the company to boost its full-year base business EPS growth forecast to 5%–7%, or around $3.91 per share at the midpoint.

However, with its stock now at $99, shares trade for more than 25x earnings. That's no bargain.

Valuation comparison: Can these Dividend Kings deliver attractive returns?

Coca-Cola, P&G, and Colgate aren't going to set the world on fire. Large consumer staples companies typically target mid- to high-single-digit annualized core EPS growth over the long term. Add in their higher-yielding dividends, and they can deliver total returns approaching double digits, assuming they maintain their valuation multiples.

However, maintaining a premium valuation multiple won't be easy. If they deliver slower growth, their multiples could contract, leaving investors with lackluster returns. Here's a look at the possible growth of a $10,000 investment made today in each of these Dividend Kings over the next five years, using very conservative assumptions:

Image source: The author.

Those returns aren't very impressive. While these are strong businesses, none currently offers a compelling expected return at its recent price because they trade at premium valuations. To deliver an attractive return from here, they'd need to achieve high-single-digit EPS growth while maintaining their premium valuation multiples. That's not impossible; it just doesn't leave much room for error.

Are these Dividend Kings buys at their new highs?

Coca-Cola, Procter & Gamble, and Colgate-Palmolive all sell products that are essential to consumers, generate substantial cash flow, and have long histories of dividend growth, providing confidence that shareholders will continue to receive rising income. Procter & Gamble has increased its dividend for 70 years, while Coca-Cola and Colgate have raised theirs for 64 and 63 straight years, respectively.

However, a great company isn't necessarily a great investment at any price. Following their recent rallies, all three trade at premium earnings multiples while offering dividend yields in the 2.2%-2.6% range. Those elevated valuations leave less room for attractive returns if their earnings grow at a more modest pace in the future. That's why I think investors should wait for better buying opportunities rather than chase them at their current highs.

Matt DiLallo has positions in Coca-Cola and Procter & Gamble. The Motley Fool has positions in and recommends Colgate-Palmolive. The Motley Fool has a disclosure policy.