The easiest way to build wealth is to find great companies, hold them for years, and let them grow over time. The consumer goods sector is one of my favorite spots to find such companies. Their pricing power, consumer-facing products, and recognizable brands make consumer goods companies a fit for just about anyone.
But stocks aren't created equally; that's why I combed through the consumer goods sector to find three companies with a history of success and blueprints for long-term growth.
These are the easy wealth builders; buy and hold these names, and you'll sleep well while slowly getting rich.
1. Home Depot
NYSE: HD
Key Data Points
Buying a home is a pillar of American culture. It's the largest purchase most people make in their lifetimes, and there is also a significant emotional attachment. The money spent on maintaining, repairing, and building housing has made The Home Depot (HD 1.50%) a perennial market-beating stock. Home Depot is America's largest home improvement retailer, with over $150 billion in annual sales. Its massive size helps it offer more products at lower prices than competitors, and its far-reaching store footprint has helped it avoid disruption from e-commerce.
HD Revenue (TTM) data by YCharts
The company is well-managed and highly profitable; Home Depot returns an impressive 34% on its invested capital. It repurchases shares and pays dividends with excess profits, further fueling investment returns. Management has raised the dividend for 15 consecutive years while shrinking the share count by 26% over the past decade.
America's home improvement market is worth approximately $867 billion, leaving plenty of room to expand. Analysts believe the company will grow earnings by an average of 6% over the long term, and the dividend yield chips in another 2.5% at its current share price.
2. Coca-Cola
NYSE: KO
Key Data Points
Packaged beverages have been around for hundreds of years. Coca-Cola (KO 0.23%) invented its namesake product in the 1800s and has since grown to become the world's largest non-alcoholic beverage company. Today, Coca-Cola sells over 200 brands of soda, water, juice, tea, and coffee all over the world. The company sells its products at millions of points of sale, including stores, vending machines, restaurants, bars, sporting arenas, and more. It leverages its brands to win top-tier shelf space when competition is involved.
The brilliance of Coca-Cola's business is the many buttons it can push to drive growth.
KO Revenue (TTM) data by YCharts
Coca-Cola is a Dividend King with 62 consecutive annual dividend raises and has beaten the broader market over the long haul.
Perhaps the most astonishing aspect of investing in Coca-Cola is the tremendous opportunity still ahead of it after generations of growth and success. Management maintains that just 30% of consumers in developed markets drink at least one Coca-Cola beverage per week, and most of those in less-developed countries don't drink commercial beverages at all. That's a lot of room to expand Coca-Cola's footprint. The dividend yields roughly 3% today, and analysts believe earnings will grow by another 6% annually moving forward.
3. Procter & Gamble
NYSE: PG
Key Data Points
You're probably familiar with household product brands like Tide, Old Spice, Febreze, and Swiffer, but you may not realize the same company, Procter & Gamble (PG +0.12%), owns them all. The company also owns dozens more brands of household items, from toothpaste and shampoo to diapers and soaps.
You always have these products in your house and usually buy more without thinking twice when they run out. That's how the company has grown through thick and thin, paying and raising its dividend for 68 years and counting. These products are household staples that sell even during recessions.
PG Revenue (TTM) data by YCharts
Similar to Coca-Cola, Procter & Gamble can leverage its many brands to win top-tier shelf space over the competition. Procter & Gamble has a storied history coupled with market-beating investment returns.
But the company's ability to pivot might impress me the most. A decade ago, Procter & Gamble sold off non-core brands to streamline the business and reignite growth. It worked; sales growth has been strong for the past five years, and analysts believe Procter & Gamble's earnings will grow by 8% annually over the long term.
Investors also get a 2.4% dividend yield that will almost certainly continue to increase yearly. Holding this stock is like building wealth in easy mode. You just have to wait.
