There's no such thing as a "sure thing" in the stock market. But when investors need to protect their portfolios against the winds of uncertainty, they frequently flock to the relative safety of consumer staples stocks.
Small wonder.
The consumer staples sector is made up of companies that produce or sell the basic goods people need day in and day out.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
During times of economic difficulty – including slowdowns and recessions – people might rein in their spending across any number of categories.
But they still need to eat and keep clean – providing a steadier baseline of demand for consumer staples stocks than many other industries enjoy.
Today, we'll take a closer gander at the sector: how it's defined, why investors seek exposure to it, and how to find the best consumer staples stocks to buy.
What are consumer staples stocks?
The short answer: Consumer staples stocks are companies whose primary businesses involve producing or selling basic goods, such as groceries and personal-care items.
For a more complete answer, let's look to the Global Industry Classification Standard – a framework used by major index providers to help classify public companies.
According to the GICS, the Consumer Staples sector comprises companies primarily engaged in food and staples retail and distribution, such as owners and operators of hypermarkets, super centers, and pharmacies.
It also includes companies that produce food, beverage, and tobacco products and manufacture household and personal products, such as detergents, soaps, diapers, cosmetics, and perfumes.
Why do investors buy consumer staples stocks?
Consumer staples stocks are similar to the healthcare and utility stocks in that they deal in the business of necessities – items people ultimately must pay for, rain or shine.
As a result, consumer staples are considered to be defensive stocks.
They generate relatively stable revenues, they're not as economically sensitive, and they can produce oodles of free cash – cash that is frequently handed back to shareholders in the form of high dividend yields.
The defensive underlying businesses and those cash payouts are a powerful 1-2 punch that can provide vital ballast to portfolios during periods of high volatility.
Naturally, there's no guarantee that staples will always hold up their end of the bargain – consumer staples have historically underperformed during a handful of downturns – but they've frequently proven their worth during bear markets.
On a total-return basis (price change plus dividends), consumer staples outperformed the S&P 500 during the Great Recession (-29% to -55%), 2020 COVID crash (-24% to -34%), 2022 bear market (-9% to -21%).
And those were just sector averages; some individual names performed even better.
This protection comes at a price, however – specifically, lesser upside potential during "risk-on" periods for the market.
While consumer staples enjoy high baseline demand, there's not much additional growth potential during periods of economic growth.
After all, you're probably not going to buy double the number of diapers or twice as much soap as you need just because things are going well.
That money is likely going toward other expenditures (on the things consumer discretionary stocks provide).
How to find the best consumer staples stocks to buy
We can't tell you exactly what you'd want out of a consumer staples stock – you might prefer larger companies to smaller firms, or you might be insistent on only buying at deeply discounted valuations.
But we can help you start your search with a basic quality screen.
To get to the following list of the best stocks to buy in the consumer staples sector, we looked at those…
Within the S&P Composite 1500: This index is a combination of the S&P 500, S&P MidCap 400, and S&P SmallCap 600.
This screen allows for stocks of different sizes, but it still represents roughly 90% of America's market capitalization, weeding out the smallest stocks.
With a long-term estimated earnings-per-share growth rate of at least 5%: Consumer staples stocks aren't exactly "growthy" stocks, per se, but we still want to buy companies that are able to improve their profits over time.
Just remember: Expectations don't guarantee results.
With at least five covering analysts: We'd like to look at stocks that are on Wall Street analysts' radar, which makes it likelier that there's both more reporting and more insights on these companies.
The more research we have at our disposal, the more educated a decision we can make.
With a consensus Buy rating: All of the stocks must have an average broker recommendation of 2.5 or less within S&P Global Market Intelligence's ratings scale.
S&P Global Market Intelligence converts analysts ratings into a numerical scale. Anything with a score of 2.5 or less is considered a Buy.
With a dividend yield of at least 1.5%: Dividends are often an important consideration for investors buying consumer staples stocks.
So here, we want to make sure that these stocks produce, at the very least, a little more income than the S&P 500 (current yield: 1.3%).
Company (ticker) | Long-term EPS growth rate | Analysts' consensus recommendation | Dividend yield |
Dollar General (DG) | 6.5% | 2.39 | 2.1% |
Tyson Foods (TSN) | 19.6 | 2.29 | 3.5 |
Kroger (KR) | 6.1 | 2.16 | 1.8 |
Sysco (SYY) | 6.1 | 2.10 | 2.6 |
Keurig Dr Pepper (KDP) | 7.2 | 1.91 | 2.7 |
Philip Morris International (PM) | 11.4 | 1.88 | 3.0 |
Coca-Cola (KO) | 6.1 | 1.62 | 2.9 |
Related content
-
Stock Market Today: S&P 500, Nasdaq Hit New Highs on Retail Sales RevivalStrong consumer spending and solid earnings for AI chipmaker Taiwan Semiconductor Manufacturing boosted the broad market.
-
Higher Summer Costs: Tariffs Fuel Inflation in JuneTariffs Your summer holiday just got more expensive, and tariffs are partially to blame, economists say.
-
Stock Market Today: S&P 500, Nasdaq Hit New Highs on Retail Sales Revival
Strong consumer spending and solid earnings for AI chipmaker Taiwan Semiconductor Manufacturing boosted the broad market.
-
If You'd Put $1,000 Into Berkshire Hathaway Stock 20 Years Ago, Here's What You'd Have TodayBerkshire Hathaway is a long-time market beater, but the easy money in BRK.B has already been made.
-
New SALT Cap Deduction: Unlock Massive Tax Savings with Non-Grantor TrustsThe One Big Beautiful Bill Act's increase of the state and local tax (SALT) deduction cap creates an opportunity to use multiple non-grantor trusts to maximize deductions and enhance estate planning.
-
Know Your ABDs? A Beginner's Guide to Medicare BasicsMedicare is an alphabet soup — and the rules can be just as confusing as the terminology. Conquer the system with this beginner's guide to Parts A, B and D.
-
I'm an Investment Adviser: Why Playing Defense Can Win the Investing GameChasing large returns through gold and other alternative investments might be thrilling, but playing defensive 'small ball' with your investments can be a winning formula.
-
Stock Market Today: Powell Rumors Spark Volatile Day for StocksStocks sold off sharply intraday after multiple reports suggested President Trump is considering firing Fed Chair Jerome Powell.
-
Callable CDs Have High Rates: We Still Don't Recommend You Get ThemInvestors must carefully consider the trade-offs, as falling interest rates could lead to reinvestment at a lower yield and make selling on the secondary market difficult.
-
Five Big Beautiful Bill Changes and How Wealthy Retirees Can BenefitHere's how wealthy retirees can plan for the changes in the new tax legislation, including what it means for tax rates, the SALT cap, charitable giving, estate taxes and other deductions and credits.
