Company / Analytics

Analytics, 02 December 2021

Why You Should Invest in Consumer Staples Stocks

Even with the emergence of the Omicron variant of coronavirus, consumer staples remain viable in the stock market. We rely on consumer staples every day – daily essentials such as food and beverages, cleaning and personal hygiene products, household, and home care products such as paper goods, and alcohol, tobacco, and cosmetics.

We buy these goods every day regardless of the economy. The amount we buy is relatively fixed in good times and bad, pandemic or no pandemic. This means that the consumer staples sector behaves much differently than consumer discretionary businesses such as restaurants, hotels, and apparel, or consumer durables, which are long-lasting products such as furniture and electronics, and which we don’t need as much as we need the staples.

The consumer staples stocks have historically experienced relatively little disruption. But these stocks make up for that modest growth with low price volatility, reliable profits and dividends, and defensive positioning. These stocks are good for long-term investors looking for buy-and-hold opportunities.

Investing in Consumer Staples

Consumer staples stocks function in a noncyclical manner, meaning they offer investors safety during recessionary climates. Since these companies sell products such as food and cleaning products that consumers rely on regardless of the state of the economy, they tend to generate solid profits even in weak economies. For instance, several consumer staples companies thrived during the early stages of the COVID-19 pandemic as consumers stocked up on essentials and avoided spending on discretionary purchases such as travel and restaurant meals.

Consumer staples stocks are also generally defensive, dividend-paying stocks, meaning they tend to outperform during economic downturns. Some are Dividend Aristocrats – companies that have increased their dividend payouts every year for at least 25 consecutive years. For this reason, consumer staples stocks are often popular with retirees and other investors seeking income and security. Many offer better dividend yields than the companies of the S&P 500, which currently pay an average dividend yield of 1.3%.

Because consumer staples companies operate in stable sectors and sell products that are always in demand, the biggest ones have been around for a century or more. Their longevity is a sign of their brand value, a history of acquiring smaller brands, and their ability to endure a wide range of challenges and economic cycles.

Top consumer staples stocks in the market today

Just as you’re familiar with many consumer staples products, you’ll likely be familiar with many of the top stocks in the sector such as Costco Wholesale, Procter & Gamble, PepsiCo, and Estee Lauder, Coca-Cola, Kraft Heinz, among others.

Different markets or regions have their variations of these stocks and investors may want to investors might want to explore which consumer staples stocks operate lead in the markets they invest in. And although many consumer staples stocks have a strong track record, there are always some stocks that outperform others in any sector.

The best consumer staples companies tend to have consistently strong organic sales, leading market shares, and attractive dividend yields. Although the industry sees relatively little innovation and growth, consumer staples products tend to be timeless, and these companies are likely to endure.

Consumer staples companies have an excellent ability to withstand recessions, increase their dividends, and most consistent, incremental growth. All of these characteristics make them good choices for investors looking for reliable, income-producing stocks.

How to Invest in Consumer Staples stocks

You can invest in individual consumer staple stocks or through an ETF that tracks these stocks. Purchasing individual stocks in any sector can be a daunting task, and many investors find exchange-traded funds (ETFs) as the best route.

If you don’t have the time, or simply don’t trust your ability to research stocks, you can rest assured that most consumer staples-focused ETFs are well-diversified portfolios that give you the ability to invest in the sector as a whole without having exposure to individual stocks.

But as is the case with individual stocks, not all ETFs are created equal. It is important to look into the historic performance, asset allocation, and expense ratios of any ETF you’re considering before diving in.

Thanks to their position as producers of staple products ingrained in the consumer’s lifestyle, consumer staples companies are known for increasing revenues and earnings and relatively steady growth in the stock market.

It is important to remember that consumer discretionary stocks may not be for everyone, especially for those looking to get rich quickly. These stocks are good for those looking to get rich over time, long-term investors looking for buy-and-hold opportunities.

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