The 10 Best Luxury Stocks With Dividends

Key Takeaways

☑️  The best luxury stocks are good portfolio diversifiers
☑️  They are cyclical stocks that do very well in good times
☑️  The ten largest luxury goods companies are compared
☑️  I share my luxury stock 🏆 Top Pick 

Are Luxury Stocks A Good Investment?

Luxury goods are universally seen as status symbols and are typically more dependent on how the economy is currently doing than, for example, household or consumer goods.

In the last 10-15 years, the luxury goods industry has benefited primarily from stronger sales in Asia. In particular, the fast-growing upper class in China was one of the world’s largest buyers of jewelry, designer fashion, and other luxury items.

As the pandemic is now behind us, consumer discretionary stocks in general, and stocks of luxury goods companies in particular have been performing well!

But are luxury brand companies a good investment? What are the best luxury stocks out there?

Disclaimer:  I currently do not own any luxury brand stocks, yet thought it would be a good time to look into this space.

Let’s start by defending what luxury actually is.  I think this quote puts it best.

Largest Luxury Stocks – by Market Cap & PS

As someone who was lucky enough to sell his business (in 2017) for 2.3x sales, I always look at the price-to-sales ratios of the stocks I research.

The luxury goods company with the highest PS is Hermès, with a whopping 17.8x its sales.

The one with the lowest one is Ralph Lauren at 1.25x. In other words, you’d need to give the shareholders of Ralph Lauren 1.25x of the revenues to buy the whole company, but it’d take you 17.8x to buy Hermès.

The luxury industry is very competitive and the trends change all the time. It is therefore vital for any luxury brand to be in touch with the upcoming consumers.

If we look at which “generation” is currently buying the most luxury products, we can see the following:

Spending on Luxury Goods By Generation

The chart above shows that the GenX (my generation) and the baby boomers are already not the biggest spenders on luxury goods anymore (surprising!). That’s why it’s key for all those luxury brands to create products that appeal to the Millenials (=Gen Y) and GenZs! 

🇫🇷 Domination

The four French luxury companies LVMH, Hermès, Dior, and Kering (incl. EssilorLuxottica, not listed above), have a combined market cap of over $1 Trio US!

This represents about 80% of the world’s top 20 largest public luxury companies’ total value (!).

This even makes the Paris stock exchange the one with the highest total value in Europe (the London Stock Exchange is in place 2). And of the 270 top high-end luxury brands in the world, a stunning 130 are French.

The 10 Best Luxury Stocks

Let’s now take a look at the dividends the luxury companies are paying.

First off, we can see that all of the 10 best luxury stocks pay a dividend. Not really high ones, but at least they all pay one.

Best Luxury Stocks – By Dividend Yield

The luxury stock with the highest dividend yield is U.S.-listed Ralph Lauren (2.7%), followed by the French luxury conglomerate Kering.

Fun fact: My favorite tech fund, investing in disruptive tech companies, and in which I just started building a position in, interestingly owns a big position in Kering.

Looking at the long-term development of the dividends of the best luxury stocks, we can see the following:

Seems even the best luxury stocks are not big dividend payers. The highest dividend yield ever is 3.6%, quite low compared to other industries!

Best Luxury Stocks – By Return on Equity

One key metric I look at is whether the companies I invest in are able to build up stockholder equity over time. The chart below shows 25 years of history of the leading luxury goods stocks:

My 🏆 Top Pick Of The Best Luxury Stock

Kering is my personal top pick as the best luxury stock.

Its brand portfolio is world-class, it is led by an experienced and well-respected CEO (2nd generation), is geographically well diversified, and most importantly, knows how to appeal to the young consumer!

Why I like Kering

1/ Fantastic brand portfolio including Gucci, Saint Laurent, Bottega Veneta, Alexander McQueen

2/ Exciting growth prospects over the next decade

3/ Underpinned by innovative projects in new fabrics and manufacturing processes, online sales

4/ International expansion of the group’s smallest brands

5/ Exciting experiments in digital luxury (virtual Gucci bags sell for more than their physical counterparts!)

6/ Experiments with clothing for metaverse avatars etc.

7/ Worldclass CEO with Pinault (since 2005)

8/ Knows like no other to appeal to the young consumer

Interview with Kering CEO Pinault

I believe Kering’s CEO, Mr. Pinault, is doing a fantastic job and leads the company extremely well. Here’s a brief interview:

💄Luxury Stocks & The Lipstick Effect

The lipstick effect, a phenomenon in which your average consumer keeps on spending money on affordable indulgences during economic downturns or recessions, is one of the factors that luxury stocks fare well and are therefore more resilient even during such economic downturns.

The best Luxury stocks benefit more or less from this effect, as it not only applies to lipsticks but any luxury item that provides some indulgence.

Conclusion

I believe the luxury segment should be part of a well-diversified portfolio.

However, I feel the current valuations are very high, not making me want to buy any luxury stocks at this stage.

Should Kering ever come down to 450€, I will start a position and be a buyer (that’s about 30% off the current price)!

📘 Read Also

• The Best European Consumer Goods Stocks
• Ouch – Selling This Dividend King Stock Hurts
• 5 Best European Stocks With Quarterly Dividends

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