Consumer staples stocks generate steady income. By paying dividends (and why not try out our dividend reinvestment calculator while you’re at it), they keep your pockets stuffed through both up and down markets. Rain or shine, it’s an all-weather strategy.
Below I’ve listed some of the top consumer staples stocks. But before we get to them, let’s take a closer look at what consumer staples are and why they’re a great investment. Then, below the list, I’ll go into detail on how consumer staples can lower your risk and produce healthy returns.
Consumer staples companies make and sell the basics. For example shampoo, toothpaste, toilet paper, soft drinks, cigarettes and mouthwash.
No matter what happens in the market, folks buy the basics. If commodity prices jump, the companies in question simply raise their prices and folks keep buying. It’s a simple and safe business model.
Many of the world’s top investors pour money into these businesses. Warren Buffett holds many staples stocks in his portfolio. And you can easily do the same. Here’s a good list to start your investment research.
CompanyTickerDividend YieldWalmartNYSE: WMT1.8%Procter & GambleNYSE: PG2.4%Coca-ColaNYSE: KO3.0%Philip Morris InternationalNYSE: PM5.5%CVSNYSE: CVS2.7%PepsiCoNasdaq: PEP2.8%Colgate-PalmoliveNYSE: CL2.5%Walgreens Boots AllianceNasdaq: WBA3.2%Anheuser-Busch InBevNYSE: BUD2.5%MondelezNasdaq: MDLZ2.1%AltriaNYSE: MO6.6%Kimberly-ClarkNYSE: KMB3.1%General MillsNYSE: GIS3.7%Tyson FoodsNYSE: TSN1.9%Archer Daniels MidlandNYSE: ADM3.1%KrogerNYSE: KR2.2%Kraft HeinzNasdaq: KHC5.0%CloroxNYSE: CLX2.8%KelloggNYSE: K3.4%Hormel FoodsNYSE: HRL2.1%
Staples stocks tend to be less volatile than the broader market. When “regular” stocks drop 10%, staples stocks tend to drop less. They have a low beta, which is used to measure volatility compared with the S&P 500.
The Consumer Staples Sector Index beta is 0.63, and the S&P 500’s is 1.0. As a result, these kinds of stocks tend to make smaller moves. During a down market, they can protect your portfolio. Let’s look at how this works in the market
During the past five downturns, staples stocks have outperformed the S&P 500 every single time.
Down YearS&P 500Staples StocksOutperform?1990-3.22%14.96%2000-9.03%16.46%2001-11.85%-6.45%2002-21.96%-4.02%2008-36.55%-15.22%Average:-16.52%+1.15%
Down years can devastate your portfolio. But consumer staples stocks can actually hand you gains, or at least substantially limit your losses, when the market heads south. Investing in just a few of the top 20 can do wonders.
These stocks tend to be less volatile and their benefits don’t stop there. They’re also a stable source of income that can generate large capital gains along the way.
Big consumer staples companies generate a lot of cash so much that they can’t reinvest it all wisely. So instead of letting it pile up, businesses return that money to shareholders through dividends.
And the top consumer staples companies have a history of returning more each year. They’re dividend growers.
Take the two well-known businesses below, for example
From 1995 to 2015, Walmart (NYSE: WMT) raised its dividend every year. And at the start of 1995, you could have bought one share for $12. Walmart was paying a $0.10 annual dividend back then roughly a 1% yield.
Over the next 20 years, the company gradually raised that payout to $1.96 paying out a total of $16.51 per share in dividends over that period. That’s more than the stock price in 1995.
The returns from the dividend alone are worth it. But Walmart’s share price climbed too, giving investors capital gains of 451% over that two-decade period. If you include the dividend, the total return jumps to about 599%.
And if shareholders reinvested that payout each time, their return would increase to 638%. That’s outstanding for a consumer staples stock.
From 1995 to 2015, Procter & Gamble (NYSE: PG) raised its dividend every year. And at the start of 1995, you could have bought one Procter & Gamble share for $16. At that time, it paid a $0.37 annual dividend roughly a 2% yield.
Over the next 20 years, the company raised that distribution to $2.63, paying out a total of $26.70 per share in dividends. And the new yield, based on the initial $16, climbed to an incredible 16% yield.
Once again, the dividend returns all by themselves make this a worthwhile play. But Procter & Gamble’s share price climbed too. Over this two-decade period, investors made 283% in capital gains. So altogether, their total return jumped to about 417%.
If shareholders reinvested each dividend, the total return would be 510%. That’s the power of compounding your returns with consumer staples stocks.
The companies above are some of the biggest players in their industries. They’re stable and keep returning value to their owners.
Take the hint from great investors like Warren Buffett. Invest in stable businesses that keep paying dividends.
And remember: If you want to amplify your returns, reinvest those dividends. Most brokers allow you to automatically do this free of charge through a dividend reinvestment program, or DRIP.
Consumer staples stocks are a great addition to any portfolio. They can lower risk and provide great returns. If you don’t already own a few, you might want to consider adding some to your portfolio soon.
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