Investing in Consumer Staples Stocks
Consumer staples stocks performed well throughout 2022, as uncertainty gripped the markets and high inflation caused central banks to rapidly hike interest rates.
Whilst this strong performance cooled in 2023, consumer staples and other defensive stocks have qualities which can make them a welcome addition to a well-diversified portfolio. So, what are some examples of consumer staples stocks to watch?
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What Are Consumer Staples Stocks?
Consumer staples is the name given to essential goods. In other words, consumer staples are products which you cannot, or will not, live without. Consumer staples stocks, therefore, are the shares of companies which produce and/or sell these items.
Typical examples of consumer staples are food, drinks and hygiene products – but the term also encompasses products such as tobacco and alcohol, things which we don’t necessarily need but which many will continue to buy come rain or shine.
Why Invest in Consumer Staple Stocks?
The main benefit of investing in consumer staples is highlighted in the term’s definition. Consumer staples are necessities. People will always buy them, regardless of the economic environment.
Consequently, the companies which produce and/or sell consumer staples tend to be able to rely on steady revenue and profits regardless of the prevailing economic climate.
During a period of robust economic growth, this may not seem like too much of an attractive quality as, due to their steady profits, consumer staples stocks don’t tend to experience the kind of gains which investors may be able to achieve elsewhere.
However, during a period of economic instability or a recession, a company which is able generate steady profits is exactly what investors crave and, consequently, in times of economic turmoil, consumer staples and other defensive stocks tend to perform well.
Furthermore, many of the best consumer staples stocks are also reliable dividend payers, meaning they can provide an additional source of income, something which will particularly appeal to income investors.
Top Consumer Staples Stocks to Watch in 2024
So, what are some of the top consumer staples stocks to watch in 2024? In the following sections, we will highlight three consumer staple stocks for investors to consider and examine their prospects.
Unilever
Possibly the most well-known of the UK consumer staples stocks, Unilever is one of the largest consumer staples companies in the world.
The company is responsible for a vast range of globally respected brands, such as Ben & Jerry’s, Hellmann’s, Dove and Vaseline.
Their numerous strong and trusted brands afford the company a high degree of pricing power which, in turn, has allowed Unilever to navigate recent inflationary pressure by successfully passing higher input costs onto consumers.
In what was a turbulent year, Unilever shares gained 6% in 2022. In most other years this would be nothing to write home about, but when you consider that the wider FTSE 100 only gained 0.7% in the same period, it becomes more impressive.
Unilever has a reliable history of continuously paying dividends to its shareholders, even in the wake of challenging economic conditions such as the Great Recession in 2008 and the Covid-19 pandemic. At the time of writing, Unilever has a dividend yield of 3.4%.
PepsiCo
As well as its namesake soft drink, PepsiCo boasts a vast range of food and drink brands, including Mountain Dew, Lay’s potato chips, Gatorade and Quaker.
Whilst most, if not all, of their products could hardly be described as necessities, the strength of their brands guarantees a reliable source of income for the consumer staples company.
This allowed PepsiCo to successfully grow net income in 2022, contributing to a share price gain of 4% for the year. As with Unilever, in isolation this figure doesn’t sound too impressive. But when you consider that the S&P 500 dropped by 19.4% in the same timeframe, it demonstrates the strength of PepsiCo's performance.
PepsiCo has a long history of reliably growing dividend payments, recently acquiring the status of dividend king, meaning that they have increased their annual dividend payment every year for 50 consecutive years. At the time of writing, the consumer staples stock yields 2.5%.
Diageo
Diageo is a UK based alcoholic beverage company which operates around the globe. Naturally, no one would ever describe alcohol as an essential product, but it is a product which people tend to buy regardless of the economic climate, earning it the status of consumer staple.
The company is responsible for some of the world’s biggest and most recognisable brands of alcoholic drinks, including Johnnie Walker and Smirnoff, two of the world’s largest spirits brands by retail sales value. Other popular brands include Guinness, Baileys and Tanqueray.
The strength of these brands allowed Diageo to increase net sales and operating profit in difficult operating conditions in their full fiscal year 2022 and in the first half of 2023. However, solid results did not translate to stock market gains, as share price fell 9.6% in 2022.
Like the other consumer staples stocks on our list, Diageo has a reliable history of paying dividends, having increased its annual distribution every year for more than 20 consecutive years. At the time of writing, the stock yields 2.1%.
Consumer Staples ETF
Of course, if you are interesting in investing in consumer staples but not interested in picking individual stocks, you can also consider investing in a consumer staples ETF (Exchange-Traded Fund).
Consumer staples ETFs use a pool of investor money to buy shares in consumer staples companies, allowing investors to gain well-diversified exposure to this sector with a single investment. An example is the Vanguard Consumer Staples ETF.
Investing in Consumer Staples Stocks with Admirals
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