Investing in Consumer Staples Stocks

Because of their reputation for reliable dividends, consumer staples stocks are often popular with retirees and other investors seeking long-term income and security. Many offer better dividend yields than an S&P 500 ETF, which currently pays a dividend yield of roughly 1.2%.

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 reflection of their brand strength, their history of acquiring smaller brands, and their ability to endure a wide range of challenges and economic cycles.

One important factor to monitor when looking at a consumer staples company is its ability to pass on cost increases. Although this issue often takes center stage during inflationary periods, it is always an important component of growth. Simple price increases, changing packaging sizes, and production innovation are all vital tactics in the industry. In inflationary periods, costs for ingredients, labor, and distribution often rise faster than a company’s ability to pass on price changes. There can be a period of margin weakness that will likely be temporary for the best-managed consumer staples companies. Price increases also need to be balanced against the risk of consumers trading down to cheaper alternatives.

Procter & Gamble is best known for its marquee brands such as Tide, Gillette, and Crest. The household and personal care company is almost 200 years old. A large number of its brands hold the No. 1 or No. 2 market share position in their categories, including paper products, laundry detergent, diapers, and beauty products. P&G is also a Dividend King.

P&G has recently developed a number of innovative products, including the nontoxic insect repellent Zevo; a dye-free, silicone-free, and sulfate-free version of Head & Shoulders called Head & Shoulders BARE; and Spruce, a weed killer, that cuts of the weed's water supply on contact. Spruce is P&G's first entry into the large lawn care category.

P&G has performed during an inflationary era since it can pass along price increases to its customers, although its growth has slowed down recently. For fiscal 2025, as of its third-quarter earnings report, the company is targeting 2% organic sales growth and 2% to 4% core earnings per share growth. Given the uncertainty around tariffs and weakening consumer sentiment, that still shows the company's ability to grow in challenging environments.

Costco Wholesale has been one of the best-performing consumer staples stocks on the market in recent history.

Unlike the other stocks on the list, Costco doesn't make products for other retailers to sell. Instead, as a retailer of primarily consumer staples, more than half of its sales come from groceries.

Costco also has many of the components of a consumer staples stock that consumers look for, including a business model built around its reputation for bargain prices on bulk goods. Its membership model adds another layer of resilience since most of its profits come from membership fees. Customers typically renew memberships at a rate around 90%.

The retailer continues to open new stores and has been delivering solid comparable sales growth and e-commerce growth.

Costco also has a track record of rewarding investors with special dividends every three to five years, which makes up for its paltry dividend yield at 0.5%.

You rely on consumer staples every day. They include daily essentials such as food and beverages, personal care products, and household and home care products.

People buy consumer staples regardless of the state of the economy, and the amount they buy is relatively fixed in good times and bad. In this way, 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.

Consumer staples companies may not have the highest earnings growth or year-over-year revenue growth because these stocks tend to be large, mature companies, and the categories they compete in are typically developed. Historically, the sector has experienced relatively little disruption, and these stocks make up for modest growth with low price volatility, reliable profits, dividends, and defensive positioning.

All three ETFs have Procter & Gamble as their No. 1 holding. PepsiCo and Coca-Cola show up in the top six while turning up lower down on two of the three lists. The iShares U.S. Consumer Staples ETF doesn't include retailers, but the other two ETFs have giants such as Walmart (NYSE:WMT) and Costco making the cut.

In addition, all three ETFs own popular consumer staples stocks such as:

• Philip Morris
• Mondelez (NASDAQ:MDLZ)
• Altria
• Colgate-Palmolive (NYSE:CL)

Related investing topics

Are consumer staples stocks right for you?

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 continue to endure.

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

FAQ

Consumer staples are noncyclical, meaning they offer investors safety during recessionary climates.