Consumer staples are considered to be non-cyclical, meaning that they are always in demand, year-round, no matter how well the economy is—or is not—performing. Also, people tend to demand consumer staples at a relatively constant level, regardless of their price. In addition, Hershey manufactures pantry items like baking ingredients, toppings, and beverages; and gum and mint refreshment products.
Further, consumer staples are important for portfolio diversification. Also, because these stocks tend to perform in a way counter to the consumer discretionary sector in market recessions, they can help bring balance to a portfolio. Because these stocks tend to perform in a counter way to consumer discretionary stocks in market recessions, they can help bring balance to a portfolio. Index funds that track the consumer staples sector can expose investors to a defensive sector while still allowing them to benefit from the overall market growth. These funds can be a good choice for investors who are looking for stability and income. There are a few things to consider when choosing a consumer staples stock ETF.
Advanced Micro Devices, Canopy Growth Corporation, OnSemi, Realty Income, and NVIDIA. Access exclusive data and research, personalize your experience, and sign up to receive email updates. Structurally, it’s also got a solid baseline of institutional buying interest thanks to KO being a long-time member of the Berkshire Hathaway equity portfolio. PG is one of the biggest employers in Cincinnati, Ohio, where it has its headquarters. With an annual marketing budget of $11.5 billion, it also holds the title of the world’s largest advertiser.
- These stocks have paid dividends steadily, indicating a solid business model.
- As stocks rise in price, dividend yields will fall if the size of the dividend does not increase as well.
- Finally, consumer staples companies that make private-label products may hold up well, as their lower price points attract consumers.
- Information is provided ‘as-is’ and solely for informational purposes, not for trading purposes or advice, and is delayed.
Like other consumer staples companies, P&G received a healthy boost from the pandemic. Notably, the organic sales gain was driven by a mixture of higher volume, price increases, and selling more higher-priced items. One important factor to monitor when looking at a consumer staples company what is currency etf and how it works is its ability to pass on cost increases. Although this issue often takes center stage during inflationary periods (like today), it is always an important component of growth. Simple price increases, changing packaging sizes, and production innovation are all vital tactics that get used.
Security can make them more attractive to investors looking for companies with long-term growth potential and stability. The company is riding 18 years of consecutive dividend increases, and has paid dividends in some form since 1925. That provides a solid yield on top of tremendously consistent share performance, which is why K is on this list of the best consumer staples stocks.
- Price increases also need to be balanced against the risk of consumers trading down to cheaper alternatives.
- This leads to a drop in consumer outlays, which impacts economic growth and spurs volatility in the stock market.
- According to data from FactSet, the consumer staples sector had the highest percentages of companies that cited “inflation” on their Q4 earnings calls during this period.
- These companies are essential to our daily life and do well even if the economy is waning.
- The other side to this is that a company could have a high P/E ratio and still be a viable investment.
People buy staples in boom times and in bust times, which makes consumer staples stocks good performers no matter what’s happening in the broader economy. That’s why they’re often considered defensive safe havens during a recession. Comprising nearly 70% of the nation’s gross national product, consumer spending holds a lot of sway over the economy. Economic growth and decline are typically led by consumer spending, which is cyclical in nature. However, spending on goods produced and sold by the consumer staples sector tends to be far less cyclical due to the low price elasticity of demand. The demand for consumer staples goods remains fairly constant regardless of the state of the economy.
Today, the firm has expanded to produce a gigantic range of different foods and beverages. Our editors are committed to bringing you unbiased ratings and information. We use data-driven methodologies to evaluate financial products and companies, so all are measured equally.
Keep an Eye on These 3 Consumer Staples Stocks
Many dividend aristocrats – companies that have increased their dividends each year for at least 25 consecutive years – are part of the consumer staples sector. According to the S&P Dow Jones Indices, for most of the 10 years ending April 26, 2021, the consumer staples sector returned 8.20% annually. Compare this to the 11.86% return of the S&P 500 over the same period.
Risks of Investing in Consumer Staples Stocks
In the past five-year period, MDLZ has increased its dividend six times, and its payout has advanced by 10%. If you’re looking to invest in consumer staple stocks, one way to do so is through consumer staple ETFs. Consumer staple ETFs offer investors exposure to a basket of consumer staple stocks, which can provide diversification and reduce risk. Two key disadvantages of consumer staples stocks include slower growth and changing consumer preferences. Investing in consumer staple stocks may provide diversification benefits to your portfolio. Investing in various consumer staple companies can diversify your portfolio and potentially reduce risk.
The profit margins on consumer staples products are known to be thin and the industry is highly competitive. FIAM products and services may be presented by FDC LLC, a non-exclusive financial intermediary affiliated with FIAM and compensated for such services. The soda industry, for example, is very consolidated, with high barriers to entry and only three main players of scale.
Additionally, companies producing these products often have established brand names and loyal customer bases, protecting against the competition. On the other hand, the growth potential of consumer staple companies may slow down and be vulnerable to changes in consumer preferences or regulatory changes. Investing in the consumer staples sector can be a good idea for long-term investors looking for more stable investments to retain their money and fight against inflation. However, these stocks also show limited growth potential, as they tend to already be established in the sector. Always consult an investing expert versed in your unique financial situation before making major investing decisions. The annual dividend rate increase over the 20-year period ended in 2015 is 8%, according to Dividend.com, though as of 2018, the sector as a whole was yielding 2.01%.
Consumer staples refers to companies that create products considered essential by consumers. With that in mind, here are nine of the best consumer staples stocks to buy now. All have something different to offer, and many also pay generous dividends on top of the potential for share appreciation. Consumer staples companies may not have the highest earnings growth or year-over-year revenue growth because these stocks tend to be large, mature companies.
Why Invest in the Consumer Staples Sector?
If you’re worried about big-picture economic trends, then consider the fact that grocery shoppers will continue to load up on these staples even if they cut back on travel or eating out. What’s more, KHC stock offers a yield that’s more than twice that of the S&P 500. As for its performance on the price chart, Kraft Heinz is up more than 9% in the last 12 months, even as most stocks in the S&P 500 have lost ground in the same period. Discount retailer Dollar General (DG, $227.82) is a nationwide chain that offers everything from cleaning products to packaged food to over-the-counter medicines to holiday items.
That makes the competition among suppliers very challenging in an environment in which commodity prices are rising. To compete on price, consumer staples producers must be able to keep their costs down by adopting new technologies and processes, or they must differentiate by introducing innovative products. And, with iconic global brands such as Dove, Ben & Jerry’s, Knorr, and Hellmann’s, the company has a strong brand portfolio to lean on as it works to improve its growth profile. Long-term investors can happily collect the generous yield while waiting for Unilever’s business performance to improve. You might still have a few questions about this vital stock market sector, beyond “What is consumer staples?
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Price elasticity is an economic concept that describes the change in consumer quantity demand as prices change. The demand for consumer staples goods remains fairly constant regardless how to become a java developer of the state of the economy or the cost of the product. Inflationary pressure remains stubbornly high in the United States lately, thanks to a rise in fuel prices.