Consumer Staples Offer Dividends and Reliable Revenue

There are yields above 4% in this investment.

Apr 2, 2014 at 4:32PM

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some consumer staples stocks to your portfolio but don't have the time or expertise to hand-pick a few, the Fidelity MSCI Consumer Staples Index ETF (NYSEMKT: FSTA) could save you a lot of trouble. Instead of trying to figure out which stocks will perform best, you can use this ETF to invest in lots of them simultaneously.

The basics
ETFs often sport lower expense ratios than their mutual fund cousins. This ETF, focused on consumer staples companies, sports a very low expense ratio -- an annual fee -- of 0.12%. The fund is new and small, though, so if you're thinking of buying, beware of possibly large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.

This consumer-staples ETF, launched in late 2013, is too young to have a sufficient track record to assess. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.

Why consumer staples?
By definition, staples are items that we tend to buy no matter what the economy is doing. That makes companies making or selling staples attractive, as they add a defensive element to a portfolio, bolstering it in downturns. Consumer staples companies also often offer dividends, in part due to their relatively predictable income streams.

More than a handful of consumer staples companies had strong performances over the past year, with some notable exceptions. Tobacco giants Altria Group (NYSE:MO) and Philip Morris International (NYSE:PM) gained 12% and shed 9%, respectively. That's not what some might have expected, as Altria, selling tobacco products domestically, faces headwinds such as rising taxes, regulations, competition from discount cigarettes, and a shrinking smoker base. Philip Morris is its international counterpart, with seemingly greater growth potential as it operates in emerging markets where growing middle classes will smoke more cigarettes. But it, too, is increasingly challenged by taxes and regulations in some markets. Its last quarter featured results that topped expectations, but volumes have been shrinking. Altria's fourth-quarter results were disappointing, with Marlboro volume shrinking by 5.7% over year-earlier levels. Altria and Philip Morris remain solid dividend payers, offering yields of 5.2% and 4.6%, respectively.

Whole Foods Market (NASDAQ:WFM) surged 24.5% over the past year, but has slipped in the past few months, as its growth seems to be slowing. Still, it has been posting double-digit growth rates and management aims to more than triple its recent store count of 370 in the coming years. Boosted by the growing demand for organic foods, the company has enjoyed substantial pricing power, but with more conventional supermarkets now offering organic fare, it faces competition and pressured profit margins. (Meanwhile, Whole Foods and its peers are giving restaurants competitive headaches with their prepared foods.) Whole Foods' dividend yield is just 0.9%, but it has rewarded shareholders handsomely through share-price appreciation, averaging annual growth of more than 17% over the past 20 years.

Other consumer staples companies that didn't do quite so well over the last year include Sysco (NYSE:SYY), up just 6.5%. Sysco leads in delivering foods and other supplies to restaurants and institutions. In its second quarter, its earnings were down 4% over year-ago levels, but still exceeded expectations, while its 4% growth in revenue didn't meet projections. Some see it as a good company in an unappealing industry and worry about how rapidly it can grow. Its fans, though, love its market dominance, consistent profitability, and reliable quarterly payout, which recently yielded 3.2%. Sysco is aiming to buy its biggest rival, US Foods, for around $8.2 billion, but it's meeting some opposition on that front from customers and some attorneys general.

The big picture
If you're interested in adding some consumer staples stocks to your portfolio, consider doing so via an ETF. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.

Who Doesn't Love a Dividend?
One of the secrets that few finance professionals will reveal is the fact that dividend stocks as a group handily outperform their non-dividend paying brethren. With this in mind, our top analysts put together a free list of nine high-yielding stocks that should be in every income investor's portfolio. To learn the identity of these stocks instantly and for free, all you have to do is click here now.

John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool's board of directors.

Selena Maranjian, whom you can follow on Twitter, has no position in any stocks mentioned. The Motley Fool recommends Sysco and Whole Foods Market. The Motley Fool owns shares of Philip Morris International and Whole Foods Market. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers