Chances are you’ve been spending more time at home than usual. You may also be spending more of your budget on some creature comforts that might normally make it on your shopping list. These are the consumer staples that you rely on every day.
And that’s what makes the consumer staples one of the most interesting sectors for investors.
For starters, consumer staples are defensive stocks. They are stocks that tend to perform well when the economy is doing well or when it is performing poorly. That’s because they are essentials like toilet paper, packaged foods and beverages, even alcohol and tobacco.
Now the opposite side of this coin is that the price you pay for these items is somewhat fixed. And that means these stocks don’t fit the definition of growth stocks. But the Covid-19 pandemic has changed that equation a little bit. It’s not that people are necessarily paying more for these items. But they are buying more of these items.
And this means that consumer staples are having their moment in the sun. However, it also means that right now there are several consumer staples that are looking a little pricey. But if you know anything about these stocks, you know that many of these companies are mature companies that pay a respectable, and safe, dividend.
Fortunately, there are still several stocks that appear to have room to grow and offer a nice dividend for investors.
Quick Links
- Ingredion
- Kellogg Company
- Kimberly Clark
- Mondelez International
- JM Smucker
- Pepsico
- Foot Locker
- Costco
#1 - Ingredion (NYSE:INGR)
Ingredion (INGR)
P/E Ratio: 14.64
Dividend Yield: 3.05%
You may not be familiar with Ingredion (NYSE: INGR), but now might be a good time to get introduced to this $6 billion company. The company is based in the Chicago area and provides ingredients to customers in over 120 countries. It doesn’t make the consumer staple products but provides some of the healthy ingredients that go in them.
Knowing where your ingredients come from is a bedrock of healthy eating. Ingredion uses grains, fruits, vegetables, and other plant-based materials to develop ingredients for food, beverages, animal nutrition, brewing, and other products.
About Ingredion
Ingredion Incorporated, together with its subsidiaries, manufactures and sells sweeteners, starches, nutrition ingredients, and biomaterial solutions derived from wet milling and processing corn, and other starch-based materials to a range of industries in North America, South America, the Asia Pacific, Europe, the Middle East, and Africa.
Read More - Current Price
- $142.37
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 5 Buy Ratings, 1 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $155.17 (9.0% Upside)
#2 - Kellogg Company (NYSE:K)
Kellogg (K)
P/E Ratio: 22.80
Dividend Yield: 3.33%
Kellogg Company (NYSE: K) may be best known as the cereal company, but it’s become so much more than that. Company executives said that global demand for its brands saw significant growth in March as consumers followed stay-at-home mandates and wanted to ensure they had their favorite packaged goods.
However, the company’s sales were down in the first quarter on a year-over-year (YoY) basis. But that’s to be expected because every stock was selling off in the initial days of the Covid-19 pandemic. On the other hand, the company’s operating profit posted an impressive gain, rising over 20% to $459 million. This raised the company’s diluted earnings per share (EPS) to climb 23.2% to $1.01.
It remains to be seen if the company’s pivot to healthier fare will pay off. Currently, the company has a P/E ratio that is above the sector average. And the 16 analysts that cover the company give it a price target that suggests the stock may be priced about right. However, the company rewards investors with a generous dividend yield of 3.33% with 15 years of consecutive dividend growth.
About Kellanova
Kellanova, together with its subsidiaries, manufactures and markets snacks and convenience foods in North America, Europe, Latin America, the Asia Pacific, the Middle East, Australia, and Africa. Its principal products include crackers, crisps, savory snacks, toaster pastries, cereal bars, granola bars and bites, ready-to-eat cereals, frozen waffles, veggie foods, and noodles.
Read More - Current Price
- $80.77
- Consensus Rating
- Hold
- Ratings Breakdown
- 1 Buy Ratings, 14 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $76.35 (5.5% Downside)
#3 - Kimberly Clark (NYSE:KMB)
Kimberly Clark (KMB)
P/E Ratio: 20.94
Dividend Yield: 2.97%
Kimberly Clark (NYSE: KMB) has rallied over 25% since the selloff in March. This just goes to show that the company’s portfolio of personal care products continues to be in high demand. But there’s another reason to own the stock. As more hospitals are opening for elective surgeries, it should provide a boost for the company’s surgical and medical instruments division.
The company is beginning to see the benefit of a restructuring plan that it began in 2018. The company is already reporting higher operating margins even as the company has had to put the plan on hold due to the pandemic.
The P/E ratio and current price target from 11 analysts suggest that investors shouldn’t be expecting significant growth. However, you’re buying a blue-chip stock like Kimberly Clark for the dividend. And the company delivers in that regard. In addition to the dividend yield that is right around 2.97%, it has increased the payout every year for the last 47 years. That can’t be overlooked at a time when many companies are reducing or suspending dividends.
About Kimberly-Clark
Kimberly-Clark Corporation, together with its subsidiaries, manufactures and markets personal care and consumer tissue products in the United States. It operates through three segments: Personal Care, Consumer Tissue, and K-C Professional. The company's Personal Care segment offers disposable diapers, training and youth pants, swimpants, baby wipes, feminine and incontinence care products, reusable underwear, and other related products under the Huggies, Pull-Ups, Little Swimmers, GoodNites, DryNites, Sweety, Kotex, U by Kotex, Intimus, Thinx, Poise, Depend, Plenitud, Softex, and other brand names.
Read More - Current Price
- $136.37
- Consensus Rating
- Hold
- Ratings Breakdown
- 6 Buy Ratings, 7 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $149.93 (9.9% Upside)
#4 - Mondelez International (NASDAQ:MDLZ)
Mondelez International (MDLZ)
P/E Ratio: 20.79
Dividend Yield: 2.16%
Mondelez International (NASDAQ: MDLZ) offers one of the best opportunities for growth in this sector. The multinational company is based in Chicago. Mondelez’s current price-to-earnings ratio of 20.79 suggests that MDLZ stock is a good value. However, 16 analysts have given the company’s stock a price target of $61.25. This would give investors a gain of over 15%.
MDLZ stock has been on an uptrend since the beginning of 2019. Significantly, the selloff in March seemed to set a floor for the stock that was significantly above the $39 price that was established at the end of 2018.
The company has a nice dividend of 2.16%. It has six consecutive years of dividend growth. Mondelez currently pays out a dividend of 28 cents per quarter. It last increased its dividend in July 2019 so investors should pay close attention to see if the company is going to provide another increase.
About Mondelez International
Mondelez International, Inc, through its subsidiaries, manufactures, markets, and sells snack food and beverage products in the Latin America, North America, Asia, the Middle East, Africa, and Europe. It provides biscuits and baked snacks, including cookies, crackers, salted snacks, snack bars, and cakes and pastries; chocolates; and gums and candies, as well as various cheese and grocery, and powdered beverage products.
Read More - Current Price
- $64.42
- Consensus Rating
- Buy
- Ratings Breakdown
- 16 Buy Ratings, 0 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $80.31 (24.7% Upside)
#5 - JM Smucker (NYSE:SJM)
JM Smucker (SJM)
P/E Ratio: 15.53
Dividend Yield: 3.28%
JM Smucker (NYSE: SJM) is presenting investors with a risk-reward proposition. The company has been active in the acquisition game recently. On the one hand, this has transformed the company from a well-known company known for its jams and jellies.
But with these acquisitions, the company is taking on some risk. Specifically, the stock is not generating the revenue and free cash flow that some investors like to see. That may be a reason SJM stock currently has a P/E ratio that is below the sector average.
However, Smucker reported operating income of $1.08 billion during the past four quarters which was better on a year-over-year basis from the $930 million. This may be a reason that the 12 analysts who have issued opinions on the stock give it a price target that suggests investors can get about 7% growth.
But Smucker is one of the bluest of the blue-chip stocks that you can buy. The company’s current dividend is 3.28%. And the company has increased its dividend in each of the last 18 consecutive years.
About J. M. Smucker
The J. M. Smucker Company manufactures and markets branded food and beverage products worldwide. It operates in three segments: U.S. Retail Pet Foods, U.S. Retail Coffee, and U.S. Retail Consumer Foods. The company offers mainstream roast, ground, single serve, and premium coffee; peanut butter and specialty spreads; fruit spreads, toppings, and syrups; jelly products; nut mix products; shortening and oils; frozen sandwiches and snacks; pet food and pet snacks; and foodservice hot beverage, foodservice portion control, and flour products, as well as dog and cat food, frozen handheld products, juices and beverages, and baking mixes and ingredients.
Read More - Current Price
- $112.04
- Consensus Rating
- Hold
- Ratings Breakdown
- 4 Buy Ratings, 7 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $127.09 (13.4% Upside)
#6 - Pepsico (NASDAQ:PEP)
Pepsico (PEP)
P/E Ratio: 27.35
Dividend Yield: 3.05%
During the pandemic, many investors thought that Pepsico (NASDAQ: PEP) might get a lift from consumers stocking up on their sugary beverages. That didn’t happen. But the good news for investors is that the company is a lot more than just the Pepsi brand. The company has a very good business in snack foods, and that segment did very well.
Overall, the company’s organic revenue grew 5.2% with $12.9 billion of sales. This easily beat analysts’ expectations for revenue of $12.7 billion. And those analysts are giving the company a price target of $143. This would give PEP stock a gain of just over 7%.
Analysts may be cheering the company’s willingness to spend more on advertising. But we’ll have to wait and see how that plays out. What is more intriguing is that the company’s new CEO Ramon Laguarta is more committed to diversifying the company into more healthy alternatives.
And in addition to a dividend yield of 3.05%, the company is a dividend aristocrat with a record of increasing its dividend for 48 consecutive years.
About PepsiCo
PepsiCo, Inc engages in the manufacture, marketing, distribution, and sale of various beverages and convenient foods worldwide. The company operates through seven segments: Frito-Lay North America; Quaker Foods North America; PepsiCo Beverages North America; Latin America; Europe; Africa, Middle East and South Asia; and Asia Pacific, Australia and New Zealand and China Region.
Read More - Current Price
- $158.74
- Consensus Rating
- Hold
- Ratings Breakdown
- 5 Buy Ratings, 10 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $183.92 (15.9% Upside)
#7 - Foot Locker (NYSE:FL)
Foot Locker (FL)
P/E Ratio: 14.98
Dividend Yield: 5.54%
You might not consider Foot Locker (NYSE: FL) to be a consumer staple stock. But the recent trend towards athleisure is changing the market. Erinn Murphy, an analyst with Piper Jaffray has termed shoe brands as “social currency”. And it’s a currency that’s growing with a key female demographic.
But that’s not to push aside the teenage audience. Piper Jaffray conducted a 2019 survey that says the average teenager owns eight pairs of sneakers. And 30% of those teens purchase a new pair every month. That leads one to believe that even in a recession, a new pair of kicks may remain an essential product.
The company’s stock appears to be slightly undervalued, and analysts give it a price target of $34.37 which would be a gain of nearly 20%. And the company pays out a dividend that has grown for the last nine years and appears very safe with a payout ratio that is in the low 30% range.
About Foot Locker
Foot Locker, Inc, through its subsidiaries, operates as a footwear and apparel retailer in North America, Europe, Australia, New Zealand, Asia, and the Middle East. Its brand portfolio includes Foot Locker, a brand comprising sneakers and apparel; Kids Foot Locker, which offers athletic footwear, apparel, and accessories for children; and Champs Sports that operates as a mall-based specialty athletic footwear and apparel retailer.
Read More - Current Price
- $22.45
- Consensus Rating
- Hold
- Ratings Breakdown
- 4 Buy Ratings, 8 Hold Ratings, 3 Sell Ratings.
- Consensus Price Target
- $26.53 (18.2% Upside)
#8 - Costco (NASDAQ:COST)
Costco (COST)
P/E Ratio: 39.00
Dividend Yield: 0.86%
We wrap things up by looking at another way to play the consumer staples segment. Costco (NASDAQ: COST) is a club-based warehouse retailer that seems to be front and center in the nationwide mask debate these days. But what investors need to know is that it has 770 locations and is far and away the leader in this small sector.
COST’s P/E ratio of 39 makes it one of the more expensive stocks in this sector. And the consensus price target suggests the stock is priced about right. But when you consider that Costco is managing to not only hold its own but continue to grow with Walmart (NYSE: WMT) and Amazon (NASDAQ: AMZN) as competitors. In the company’s most recent fiscal year, it posted same-store sales (stripped of gasoline sales) that grew 6.8%. This is perhaps one of the most important metrics that analysts look at to measure the health of a company.
And you’ll benefit from a reliable dividend that the company has increased for the last 16 consecutive years.
About Costco Wholesale
Costco Wholesale Corporation, together with its subsidiaries, engages in the operation of membership warehouses in the United States, Puerto Rico, Canada, Mexico, Japan, the United Kingdom, Korea, Australia, Taiwan, China, Spain, France, Iceland, New Zealand, and Sweden. The company offers branded and private-label products in a range of merchandise categories.
Read More - Current Price
- $928.08
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 18 Buy Ratings, 9 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $908.81 (2.1% Downside)
Consumer staple stocks aren’t the sexy technology stocks that have a tendency to go up simply because they are technology stocks. The problem that you’ve likely experienced is that what goes up frequently goes down. And just as fast as it goes up.
But what consumer staples may lack in style, they more than make up for in substance. And this substance can give investors a feeling of certainty in uncertain and volatile signs. And that’s why these stocks deserve a place in your portfolio. They may not be the stocks you brag about when you’re sitting at the nineteenth hole, but they’re stocks that will help you rest easy during volatile times.
In addition to being defensive, non-cyclical stocks, consumer staples frequently pay out a solid dividend. Because of the dividend, these stocks tend to outperform many stocks in down markets. In fact, many of these stocks belong to the exclusive club of Dividend Aristocrats, which means the companies have increased the dividend payout every year for at least 25 consecutive years.
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