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All Contents © 2019The Kiplinger Washington Editors
By James Brumley, Contributing Writer
| May 8, 2019
Consumer staples stocks have largely fallen off the radar in recent months. Investors have been much more focused on growth as corporate earnings have pleasantly surprised, the U.S.-China trade spat showed signs of hope and the Federal Reserve decided to keep interest rates steady.
Naturally, these more defensive companies haven’t been especially red-hot of late. Consumer staples stocks have lagged the marketwide bounce that took shape beginning in late December. But with many other sectors starting to feel the weight of unwieldy gains, and with China trade talks yet again hitting turbulence, the sector might be ready to heat up again.
Steve Azoury, founder of financial planning firm Azoury Financial, says, “Consumer staples, the products that people use every day, will always be a big part of America’s economy.” “The trick,” he adds, is identifying the companies that “will stay innovative and update their products and services to excite their customers, and thus the stock prices for investors.”
Here are 18 of the best consumer staples stocks to invest in at the moment. While some of these are blue-chip stocks that should ring a bell, others are lesser-known companies that serve as the backbone of brands you may be more familiar with. Almost all of them provide varying levels of dividend income.
Data is as of May 7. All stocks are classified as consumer staples stocks by market-data company Finviz, though classification differs by system. Dividend yields are calculated by annualizing the most recent monthly payout and dividing by the share price. Companies are listed in alphabetical order.
Market value: $99.0 billion
Dividend yield: 6.0%
Cigarette smoking is a fading vice. Smoking cessation messaging appears to be effective. In general, people say they’re more health-minded now than they’ve ever been.
And yet, there it is. Cigarette maker Altria Group’s (MO, $52.94) operating income continues to be in a longer-term uptrend, from $7.6 billion in 2014 to $9.5 billion in 2018. It’s not eye-opening, and it hasn’t been perfectly consistent. But Altria is making progress.
There will always be headwinds, and in fact, two new stumbling blocks have surfaced of late. Sen. Mitch McConnell (R-Ky.) recently pledged to introduce legislation that would mandate a nationwide minimum smoking age of 21. While the senator’s bill may or may not become law, it still points to a growing social concern that eventually could bite off a key demographic for the cigarette giant.
Separately, vaping (the use of electronic cigarettes that produce an inhalable vapor) is proving a compelling alternative to traditional tobacco usage, in that it at least seems to be a safer choice than inhaling smoke. But Altria has waded into the vaping arena itself. Late last year, it took on a one-third stake in e-cigarette outfit Juul. It enjoys a massive 75% e-cig market share, and it’s a huge hit with the all-important 18-to-21-year-old crowd.
There will come a time when Altria can’t justify supporting unhealthy habits, but that time is well beyond the horizon. Until then, it provides some stability and one of the largest yields among blue-chip consumer staples stocks.
Market value: $7.1 billion
Dividend yield: 4.0%
You can look at every shelf in your local grocery store and not find a single Bunge (BG, $49.98) label. But you would absolutely notice if the company were to suddenly shut down. Bunge is one of the world’s bigger producers of grains, oilseed and sugar, supplying food producers with much-needed ingredients.
That business does fluctuate from time to time. Although the world always eats a fairly consistent amount of food per capita, commodity prices can waver, and volatile costs such as transportation and delivery can make the bottom line tricky to handicap.
For instance, Bunge earned an adjusted profit of $1.57 per share in 2018 that was 76% better than 2017’s total. But that included a fourth quarter in which earnings dropped from 67 cents per share in the year-ago period to just 8 cents. In the short-term, Bunge can be a very difficult company to handicap.
But investors with a true long-term view can appreciate that, given enough time, Bunge bears fruit. And its mostly reliable cash flow drives a healthy dividend of 4%.
One last wrinkle: Morningstar analyst Seth Goldstein believes new CEO Gregory Heckman, who was elevated after operating as acting chief for three months, might be a precursor to stepped-up M&A activity, including the possibility of Bunge selling itself.
Market value: $11.5 billion
Dividend yield: 3.7%
Campbell Soup (CPB, $38.23) is one of a large handful of food-focused consumer staples stocks that got caught in a perfect storm of headaches beginning in 2016. Stymied by rising commodity costs, increasing shipping costs, vertical integrations of distribution partners and shifting consumer tastes, CPB stock fell from a 2016 high near $68 to a low around $32 earlier this year.
The iconic company appears to have finally put its finger on the pulse of how shoppers think and make food purchases, however. Simultaneously, it has overhauled its operation for maximum efficiency to control costs.
Part of that overhaul includes sales of brands that aren’t an ideal fit. Campbell has sold fresh-foods brand Bolthouse Farms to a private-equity firm, and the company was in talks with Mondelez (MDLZ) to sell off its international business. The organization now seems to see it has to shrink to thrive.
At the same time, activist investors that can and will drive value-building change are on board – literally. Daniel Loeb’s Third Point fund took on a sizable stake in the company in late 2018, and earlier this year parlayed that into two board seats. Loeb’s interest, and now his influence, bodes well for CPB. It’s just a matter of making the right tweak.
Market value: $4.6 billion
Dividend yield: 2.0%
Some investors will readily recognize Carter’s (CRI, $101.52) as the owner of baby apparel labels such as OshKosh B’gosh, Genuine Kids, Skip Hop and the namesake Carter’s.
Carter’s might look and feel like a cyclical apparel name, and some classifying systems see it that way. But there’s more than meets the eye here.
While the so-called retail apocalypse has reached deep into the retail industry and upended thousands of brick-and-mortar stores, and the apparel industry in particular, Carter’s has proven a stark exception to that norm. New parents and grandparents tend to buy new baby and toddler clothes even when those parents and grandparents are unwilling (or unable) to buy new clothes for themselves.
The proof is in the numbers. Carter’s has reported a year-over-year decline in quarterly revenue merely twice since 2010 – a spectacular performance that would make most retailers green with envy. Operating income isn’t as consistent but is on a growth track all the same thanks to both savvy acquisitions and smart use of e-commerce.
The market remains firm too. Although the number of babies being born per capita in the United States is fading, the actual number of births per year in the U.S. is holding reasonably steady at just under 4 million.
Market value: $18.9 billion
Dividend yield: 2.6%
Clorox (CLX, $148.46) has reported some degree of year-over-year sales growth every quarter since mid-2014. Some of that growth has been lackluster to be sure, but the consistency is impressive all the same. Per-share profit growth hasn’t been quite as consistent. Still, the $6.26 in profits it earned in the year ended June 30, 2018, was 17% better than its fiscal 2017 sum.
Clorox (the company) isn’t just bleach. It sells sanitizing wipes under the same brand name, but it’s also the company that makes and markets Glad trash bags, Liquid Plumr drain de-clogger, Fresh Step cat litter and Kingsford charcoal, just to name a few products in its portfolio. It’s a boring lineup, but a lineup full of products that consumers must purchase again and again. That’s why sales and profit growth alike have been consistent for years.
Analysts don’t have Clorox among their favorite stocks to invest in right now. In fact, JPMorgan recently downgraded CLX to an “Underweight” rating (equivalent of “Sell”), with analyst Andrea Teixeira suggesting Nielsen sell-through data indicated a sales slowdown that could reflect a developing “multi-quarter issue.” The analyst community as a whole rates Clorox as a less-than-thrilling “Hold.”
But those same analysts still predict sales and profit growth out of the consumer staples stock going forward. And CLX shares haven’t stopped making long-term forward progress, either, despite a wave of downgrades in November.
Market value: $105.7 billion
Dividend yield: 1.1%
Club-based warehouse retailer Costco (COST, $240.18) operates 770 locations and is hands-down the category leader as well as the pacesetter in this sliver of the industry.
Shares aren’t cheap, even by retailing standards. The stock trades at more than 30 times its trailing 12-month profits, and the forward-looking price-to-earnings ratio of 28.1 times analysts’ expectations isn’t much more compelling.
But Costco is a bulldozer, hanging with rivals ranging from Walmart (WMT) to even Amazon.com (AMZN). Last fiscal year’s worldwide gasoline-adjusted same-store sales growth weighed in at an impressive 6.8%, while total revenue including membership fees was up nearly 10% in fiscal 2018. Analysts are modeling slower growth this year, but those same analysts frequently underestimate the retailer.
Regardless, Costco hasn’t reported lower year-over-year quarterly revenue in a decade, and per-share quarterly earnings dips are a rarity not seen since early 2017.
Monetta Financial Services founder and portfolio manager Bob Bacarella says Costco “has a number of competitive advantages such as low prices, economics of scale compared to smaller retailers, can easily adjust to changes in customer consumption patterns, has an online delivery platform, an and innovative supply chain/inventory system.” Bacarella also is impressed by the way Costco continues to increase same-store sales while other retailers are getting “Amazoned.”
Market value: $99.7 billion
Dividend yield: 1.6%
You might not know the name Diageo (DEO, $167.50), but you likely know at least one of its brand names. Diageo is the company behind Guinness beers, Johnnie Walker Scotch whiskies, Smirnoff vodkas, Captain Morgan rums, Don Julio tequilas and several other spirits and wines. In fact, it’s one of the world’s largest distillers.
While perhaps not mankind’s most flattering reality, the fact of the matter is, booze always sells, and it usually grows, which makes liquor companies popular stocks to invest in. Earlier this year, the Distilled Spirits Council announced that in 2018, even with steep tariffs mucking up international trade, American sales of spirits improved for a ninth straight year. Supplier revenue grew 5.1% year-over-year to $27.5 billion, and volumes grew 2.2% to 231 million cases. And it’s not just spirits and liquor sales that are growing – U.S. spending on alcoholic beverages of all types improved 5.1% last year.
Diageo has been and continues to reshape itself to most effectively ride the industry’s rising tide too. Last year it announced the sale of 16 value-priced brands including Popov, Goldschlager, Parrot Bay and Peligroso to privately held rival Sazerac so it can better focus on its more profitable premium brands.
The company also is wisely adapting to the experience-minded demands of millennials, who will be the Diageo’s core customers for years to come.
Market value: $6.1 billion
Dividend yield: 2.8%
There was a point in time when it was laughable to consider sports shoe specialist Foot Locker (FL, $54.24) a consumer staples name. It was an apparel retailer, for one, and the high-end sneakers it peddled were a luxury purchase and a fashion statement. As such, they were highly subject to economic ebbs and flows.
Consumers have changed, however, and the marketplace with it.
“Fashion and athletic brands have become a way of life. It is being used not just for sports but everyday wear,” Piper Jaffray analyst Erinn Murphy, who describes sneaker brands as “social currency,” recently told Yahoo Finance. Murphy continued to say that “72% of females named an athletic brand as their favorite brand. Going back to our survey 10 years ago, that number was in the low 20% range.”
Piper Jaffray’s spring 2019 “Taking Stock with Teens Survey” sheds more light on the matter, determining the average teenager owns eight pairs of sneakers, with at least 30% of that demographic purchasing a new pair every month.
Foot Locker has become the supplier of choice for athletic footwear fans, too. After a glut of celebrity-endorsed basketball shoes inspired the opening of far too many stores that ultimately had to be closed, Foot Locker is a tougher and savvier survivor. Aside from stepping up its e-commerce game, the retailer is innovating. Earlier this year it shelled out $2 million to acquire the Pensole Footwear Design Academy in an effort to develop exclusive products for the retailer’s stores.
Foot Locker isn’t to be confused with companies that actually sell toilet paper and canned goods that must be consumed no matter what the economy is doing. In a full-blown recession, all bets are off. But for now, customers are treating Foot Locker differently than almost all other apparel retailers.
Market value: $2.5 billion
Dividend yield: N/A
Hain Celestial (HAIN, $23.70) is one of the most health-minded consumer staples stocks you can invest in. This packaged-foods company’s brands include BluePrint Organic, Walnut Acres, Candle Café vegan foods and Bearitos, plus about a dozen others.
Hain and its stock were unstoppable through the middle of 2015. But the company may have pushed its growth agenda a bit too aggressively for too long. American Century Investments vice president and senior portfolio manager Jeffrey John says Hain’s “long-term roll-up strategy left the company with a bloated SKU count, levered balance sheet and declining returns.”
That is one key reason HAIN shares lost more than three-fourths of their value between 2015’s peak and 2018’s low.
The foreseeable future looks much brighter, though. American Century’s John goes on to explain “the new management team is focused on optimizing its product portfolio by investing behind brands with greatest growth opportunities and those with highest profit potential while winnowing brands lacking profitability and scale – a shrink-to-grow strategy.” The shift, John believes, should improve the return on the company’s investment as well as boost free cash flow that can be used to whittle down debt.
Market value: $6.4 billion
Dividend yield: 3.4%
Hanesbrands (HBI, $17.75) is hardly just the Hanes brand anymore. Playtex, Bali, Champion, L’eggs and Maidenform are among other labels in the Hanesbrands family. None may seem like consumer staples, but much like food and cleaning supplies, consumers regularly replace worn-out underwear and T-shirts.
Hanesbrands’ recurring revenue machine isn’t perfectly bulletproof. Last year’s earnings slumped in earnest for the first time since 2008’s economic debacle, driven by a combination of competition, the continuation of a retail apocalypse that’s still claiming key distributors such as Sears (SHLDQ) and ongoing tariff wars. Although Hanesbrands made a point of finding non-Chinese suppliers of textiles before tariffs went into place, no company has been completely immune to the ripple effect.
Hanesbrands has been solidly resilient in the bigger picture, though. Analysts still expect the company to renew earnings growth this year, then continue expanding in 2020. The estimates are modest, but that’s OK – shares are modestly priced, too, at less than 10 times next year’s profit expectations.
That outlook may underestimate what’s in store. Hanesbrands has turned the heat up on its licensed apparel effort, recently securing a semi-exclusive deal to supply the University of North Carolina at Chapel Hill with school-related clothing, following March’s announcement of an exclusive agreement with the University of Cincinnati.
Market value: $14.2 billion
Dividend yield: 2.7%
JM Smucker (SJM, $125.09) is best known for its jams and jellies, but it’s so much more than that now. Smucker also owns Jif peanut butter, Crisco, Folgers coffee and even Kibbles ‘n Bits pet food, just to name a few.
The diverse line of repeatedly purchased goods hasn’t quite made JM Smucker’s financial metrics immune to setbacks. Like most food companies, this one has felt the pinch of higher freight costs, rising commodity costs and the impact of a lingering tariff war.
Smucker has proven itself remarkably resilient all the same, however, with revenue as well as earnings maintaining long-term growth despite the occasional short-term bump in the road. For perspective, the company’s trailing 12-month revenue of $7.72 billion was only $7.36 billion a year earlier. Operating income of $1.08 billion earned during the past four quarters is better than the $930 million earned a year earlier.
Smucker has done well with acquisitions too, quickly extracting organic growth from its 2015 deal to purchase Big Heart Pet Brands, and the 2013 purchase of organic, gluten-free food company Enray.
The jelly giant is simply a well-run outfit that also sports a respectable yield of 2.7%. That dividend has been growing on an annual basis every year for more than two decades.
Market value: $19.5 billion
Dividend yield: 3.9%
Kellogg (K, $57.15) is best known for breakfast cereals such as Corn Flakes and Rice Krispies. But those products are only a fraction of the food giant’s portfolio. Keebler cookies, Pringles potato chips, Eggo waffles and Famous Amos are also part of the Kellogg family, along with a slew of other products most consumers would readily recognize.
Granted, some of those brands are about to be officially shed. Famous Amos, Murray’s, Keebler and Mother’s are being sold to Ferraro Group, essentially getting Kellogg out of the cookie business. It’s a smart strategic shrinking, however. CEO Steven Cahillane explained earlier this month the divestiture would lead to “reduced complexity, more targeted investment and better growth.”
What’s left behind is a smaller but better cash-generating machine.
When the possibility of the sale first surfaced in November, Greg Wank – the food-and-beverage lead at accounting outfit Anchin, Block & Anchin – wrote, “Kellogg’s is wise to focus on morning foods (cereal) and snacks which probably includes bars but would not include cookies and sweets. They appear to have made the decision that cookies are not core to their future and they want to raise capital from selling those assets to reinvest and realign their cereal and healthier snack business.”
Meanwhile, investors are being paid nearly 4% annually for their patience.
Market value: $43.4 billion
Dividend yield: 3.3%
Paper-product specialist Kimberly-Clark (KMB, $126.18) – responsible for brands such as Huggies, Kotex and Kleenex – is anything but an analyst favorite among consumer staples stocks. The pros collectively rate it a weak “Hold,” and the consensus price target near $111 is well below the stock’s present price. This crowd hasn’t appeared interested in adjusting its calls either, despite the unexpected strength that has buoyed shares since the middle of last year.
But a few pros are starting to come around. Perhaps they’re realizing that Kimberly-Clark is better-positioned for the future than it seemed until recently.
Macquarie analyst Caroline Levy is one of the newest believers, upgrading KMB from “Neutral” (equivalent of “Hold”) to “Outperform” (equivalent of “Buy”) this month. She explained, “Price/mix is coming in better than expected YTD, and given much easier sales comparisons for the rest of the year, a solid innovation pipeline and effective marketing/higher adspend (especially on digital), we are more confident in the sales growth outlook for KMB.”
If the company didn’t achieve something close to Levy’s organic revenue growth forecast of 4% for 2019, it would come as a small surprise. Although Kimberly-Clark has logged some disappointing quarters since 2016, marked by declining sales and earnings, it still raised the bar on investors’ behalf earlier this year by guiding for organic sales growth of 2%.
Market value: $20.6 billion
Dividend yield: 2.2%
Kroger (KR, $25.77) admittedly faces challenges that were unthinkable just a few years ago. Chief among them: Amazon.com not only sells groceries online and via its Whole Foods arm, but it’s also planning to open grocery stores that will compete head-to-head with Kroger on price. In the meantime, deliveries and curbside pickup made the company’s competitors at least a bit easier to access.
But Kroger is past the initial shell shock of entering the modern, digital era of consumerism. Now, it’s positioned to reboot itself as one of the top consumer staples names it had been for decades.
One of Kroger’s overdue initiatives has been the use of technology to improve the shopping experience. Among the coolest of its developments is its EDGE (Enhanced Display for Grocery Environment) shelf display system, which lets shoppers use their smartphones to gather a wealth of information about a particular product using their smartphones. The EDGE platform even guides a shopper to an in-store product. And importantly, it sets the stage for ad revenue.
In the meantime, easier-to-implement measures are being taken. Curbside pickup is now available at 1,250 locales, and 1,200 of its 2,800 stores now offer delivery options. These and a slew of other efforts have analysts calling for a renewal of the grocer’s long-term history of steady growth.
Market value: $10.0 billion
Dividend yield: 1.2%
Most investors likely have consumed a Lamb Weston (LW, $68.25) product and not even realized it. This hyper-focused consumer staples stock is one of the top suppliers of potato products to restaurants and retailers across the globe, including supplying 80 million of the world’s daily servings of French fries.
Like other food outfits, LW has faced recent turbulence on multiple fronts. Case in point: Potato prices in the U.S. are up modestly from 2016’s levels, ending a downtrend that benefited the company. Potato prices in Europe almost doubled in 2018 in response to a severe shortage. That scenario has left Lamb Weston with some tough choices to make, all of which somehow crimp profits.
Even beyond rising potato costs, the company fears inflation of other costs. Within its first-quarter report was a full-year outlook in which Lamb Weston cautioned that results may “moderate as we begin to lap strong prior year results, face increased cost inflation, ramp up investments in operating, sales and product innovation capabilities.”
Take the warnings with a grain of salt. Lamb Weston may merely be managing expectations. The company has grown the top and bottom lines in every quarter since its spinoff from Conagra Brands (CAG) in late 2016. The fact that potatoes are the United States’ most popular vegetable, with two-thirds of them being consumed as French fries, probably has a lot to do with that dependability.
Courtesy Mike Mozart via Flickr
Market value: $6.8 billion
Dividend yield: 5.8%
You may better recognize the name Newell Brands (NWL, $15.96) by pairing it up with its sister brand Rubbermaid, but the company is so much more than just handy containers now. Newell makes products with Coleman, Crock-Pot, Elmer’s Glue, Mr. Coffee, Yankee Candle, Graco and Sharpie labels too.
It’s a quintessential collection of products that consumers use, break, throw away and then replace in perpetuity, often without even realizing they’re doing it.
Newell has been one of the worst consumer staples stocks to invest in over the past couple years, however. The company made a major acquisition in buying out Jarden in 2016, but its top line has been shrinking regularly since the deal was done. Operating income has been deteriorating rather consistently for a decade. For whatever reason, things just haven’t clicked. Shares have lost roughly two-thirds of their value since this point in 2017.
Newell isn’t a long-reliable consumer staples stock, then … but it is a potential comeback play.
Longtime CEO Michael Polk announced in March that he would retire at the end of the second quarter. While few leadership transitions are easy, changes clearly are needed. Polk’s exit is an opportunity to inject new life into several well-respected product lines that simply need some help. In the meantime, activist investors including Carl Icahn and Starboard Value’s Jeffrey Smith are reportedly kicking the tires, suggesting faith in the potential of a turnaround. Analysts also are finally calling for stability in its operational results, which typically occurs at key pivot points.
Market value: $157.3 billion
Dividend yield: 3.0%
Sugary soda drinks are falling out of favor as consumers become increasingly health-conscious. Fortunately, PepsiCo (PEP, 112.24) has expanded well past carbonated beverages. Aside from Pepsi, Lipton, Gatorade and Sobe drinks, among others, PepsiCo also has a sprawling snacks division that includes Quaker oat products, Lay’s potato chips, Cap’n Crunch cereal, Sabra dips and more.
While not bulletproof, that diverse product mix has helped smooth out potentially wide swings in revenue. Operating income growth has been largely reliable, too.
And a long-missing ingredient may have just been added to the mix, ushering PEP to the head of the class among consumer staples stocks. Relatively new CEO Ramon Laguarta, who took the helm from Indra Nooyi a couple of quarters ago, is willing to spend more on advertising than Nooyi was. He also has streamlined operations and taken healthier snacks and drinks more seriously than his predecessor did.
It’s still the early innings of the Laguarta era, but he’s off to an encouraging start. Last quarter’s organic revenue grew 5.2%, and sales of $12.9 billion handily topped expectations of $12.7 billion. Per-share profits of 97 cents also beat estimates easily.
Market value: $262.6 billion
Dividend yield: 2.9%
Procter & Gamble (PG, $104.70) once was one of the most beloved consumer staples stocks to invest in, but size and age has caught up with it. The advent of the internet – where P&G missed a key opportunity – didn’t help either, by virtue of making it easy for niche brands and open-minded consumers to find one another. Dollar Shave Club is one such example.
Relatively new CEO David Taylor, however, has pointed the staples giant in the right direction again by rethinking everything from the top down. “By trimming products in the pet food and bleach business, they are now concentrating on their core products of Tide laundry detergent, Bounty paper towels and Pampers,” explains Azoury Financial’s Steve Azoury.
That refocus, which included the divestiture of beauty brands like Clairol and Covergirl, ultimately rekindled a long-term advance for the stock by improving profits even though asset sales crimped revenues beginning in 2014.
More of the same might be on the way, too, driving fresh dividend growth for income-minded investors. Azoury points out the company recently raised its dividend for a 63rd consecutive year, and better still, can afford it. The new quarterly payment of 74.6 cents per share annualizes at $2.98, which is only about two-thirds of this year’s projected profits.
James Brumley was long FL as of this writing.