Get 40% Off
🚨 Volatile Markets? Find Hidden Gems for Serious OutperformanceFind Stocks Now

These 4 Consumer Staple Stocks Can Help Protect Your Portfolio

Published 23/10/2023, 20:56
Updated 07/04/2022, 09:55

From safest to riskiest, consumer staple companies offer more than essential goods.

Last Thursday, Federal Reserve Chair Jerome Powell framed the economic landscape in dire terms, stating that “the path we’re on is unsustainable.” One could draw many data points to bolster his point. As of September, the budget deficit ran up to $1.7 trillion, a $320 billion increase from 2022.

At the same time as the Fed interest rate hikes attempt to bring down inflation, the USG expenditures on net interest payments rose to $711 billion. In other words, much of economic output is being redirected to avoid the sovereign debt crisis. Consequently, according to Bloomberg economists, a recession is still on the horizon.

Investors look at consumer staple stocks in this time of unsustainability and uncertainty. These companies supply goods that people need regardless of economic cycles, making them recession-proof. In turn, such reliable profit inflow gives them generous dividend yields.

In economic downturns, reliable dividend yield represents a low-risk hedge against wealth erosion. Having reliable income sources from essential goods, consumer staple companies can afford to pay a larger portion of their earnings to shareholders.

If a company’s share is priced at $100 while paying a $1 dividend annually per share, its dividend yield would be 1%. The present industry average dividend yield is 1.7%. With that in mind, which staple stocks to pick and why?

Costco Wholesale Corp

Aptly named wholesale retailer, Costco Wholesale Corp (NASDAQ:COST) maximizes the return on membership-only warehouse sites. This business model keeps operating costs predictable and low while offering bulk discounts. Costco picks the most popular items and then offers them in high volumes.

3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or remove ads .

As of September 2023, Costco attracted nearly 128 million members. With global warehouse-like stores, the company’s goods range from groceries, home goods, and apparel to electronics. Unsurprisingly, Costco’s business model positioned it as a healthy company, with only a 25.8% debt-to-equity ratio.

As inflation pressures people into cost-effective bulk-buying, Costco’s net sales increased 9.4% as of September 3 compared to the prior quarter. For the twelve months ending August 31, Costco’s revenue jumped 8.23%. Year-to-date, COST shares increased 21% in value, currently priced at $555.38 per share.

Based on 29 analysts, Nasdaq consensus places COST stock in the “strong buy” category, with a low estimate of $502 against the high estimate of $680. Although offering a 0.74% dividend yield, there is hardly a better company suited to endure the harshest economic cycles and increase yields during them.

Philip Morris International Inc

Over the years, multiple studies have shown that vaping is healthier than conventional smoking. Although vaping is still less healthy than not indulging in the habit at all, it offers a transitory avenue for over 1 billion smokers.

Philip Morris International Inc (NYSE:PM) has positioned itself as the leading international tobacco company on that road, offering a wide range of nicotine products. These goods are not staples per se but are equally as essential to consumers. Given its ownership of iconic cigarette brands such as Marlboro and Chesterfield, PM has a global reach and competitive advantage.

In a new role as a smoke-free tobacco company, PM’s net revenue has increased 4.3% year-over-year, ending June 30. Although PM missed the expected revenue windfall of $9.17 billion in last week’s latest earnings, against achieved $9.14 billion, new products surpassed expectations.

3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or remove ads .

In particular, the shipment volume of PM’s smokeless Zyn nicotine pouch, following the acquisition of Swedish Match, increased by 65.7%. Such strong diversification away from conventional smoking is why the Nasdaq consensus, across 15 analysts, is a “strong buy.”

The average price target is $109.06, with a high estimate of $120 and a low estimate of $85.5 vs the present price of $90.98 per share. Philip Morris offers one of the highest dividend yields at 5.6%, although it is still lower than the average of 6.1% in the tobacco industry.

Unilever PLC

Unilever PLC (LON:ULVR), a British multinational has over 400 brands under its consumer goods belt. Unilever manufactures and sells a variety of items, from foods and beverages to home care and personal products.

This Thursday, Unilever will release its Q3 earnings report. In the last quarter, the company beat sales growth estimates at 7.9% vs forecast 6.4%. The underlying sales grew by 9.1%. Nasdaq consensus, across 7 analysts, puts UL stock in the “buy” category.

The average price target stands at $229.67 vs the present $48.72, with a low estimate of $44. Unilever’s dividend yield is 3.6%, forecasted to rise to 4.2% in the next three years.

Even Higher but Riskier Dividend Yield

In fiscal 2023, Walgreens Boots Alliance Inc (NASDAQ:WBA) had a net loss of $3.1 billion, vs net earnings of $4.3 billion last year. Yet, the retail pharmacy chain offers the highest dividend yield of 9%. Given WBA’s low debt-to-equity ratio of 31.8%, the company has plenty of space to recover and keep those payouts coming. This includes lowering overall costs and investing in digital initiatives for healthcare delivery.

3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or remove ads .

Year-to-date, WBA stock performed poorly as expected, losing 41% of its value. This puts it into a discounted “buy” category, according to 17 analysts aggregated by Nasdaq. The average price target is $26.89 vs the present $22.18, with a low estimate of $22, which aligns with the bottom at press time.

***

This article was originally published on The Tokenist. Check out The Tokenist’s free newsletter, Five Minute Finance, for weekly analysis of the biggest trends in finance and technology.

Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.