For investors who are sick of opening the paper each day to learn about a new European politician who somehow sent markets back into turmoil and crushed their portfolio in the process, the calming, almost zen-like stability of consumer staples stocks may present a soothing alternative to the wildly shifting cyclical sectors.
“Everybody’s Gotta Eat.”
The old adage clearly applies to the markets, as consumer staples present precisely the sort of product that usually wins out in the end: One that the consumers quite literally cannot do without. As such, there are a number of stocks in the consumer staples sector that have shown remarkable consistency over time, combining consistent growth with a solid dividend yield.
Unilever plc (UL)
This English food and cleaning products maker is the largest major diversified food company in the world with a market cap of over $90 billion. It has a bevy of different brands that it produces, including Hellman’s, Lipton, Axe/Lynx, and Dove. Unilever has shown consistent growth for the last 40 years, gradually improving its value over time with relatively little volatility. Unilever has proven that 2011, despite European debt crises, should be no different. Shares are up 9.56 percent year-to-date, proving that there are strong stocks out there even in tough times. Adding to this benefit is an appealing dividend yield at 3.77 percent.
Kraft Foods, Inc. (KFT)
Kraft is another giant in the food industry, with a market cap of $62 billion. Like Unilever, Kraft has used their position in a defensive sector to provide solid returns this year, up nearly 15 percent year-to-date, nearly triple the gains of the Dow over the same period. Kraft, which had the dubious honor of replacing American International Group (AIG) in the Dow Jones Industrial Average in September of 2008, was a holding of Phillip Morris–now Altria (MO)— in 2001 when it was combined with Nabisco and spun off in the third largest IPO in history. Now, Kraft, whose product lines include Oreo, Cadbury chocolates, Trident gum, Maxwell House coffees, Philadelphia cream cheeses, Kraft cheeses, and Oscar Mayer meats, offers a yearly dividend yield of 3.3 percent.
Lancaster Colony Corp. (LANC)
While significantly smaller than some of the other major players in the industry, Lancaster Colony has also grown at a much faster rate. The food company, which owns the T. Marzetti Company and makes products under brands Marzetti’s and Cardini’s among others, has paid a dividend since 1987 while still seeing its share price rise 120 percent in the last decade, 71 percent in the last five years, and 20 percent year-to-date. This sort of steady growth could be attractive enough on its own for investors, but the dividend yield of 1.95 percent adds an extra incentive as well.
Investing in Safe Yields vs. Capital Gains
For investors with an “any port in a storm” mentality, these consumer staples stocks can be extremely attractive, but their apparent stability often comes at a price. While food stocks certainly appear to be a safe buy, they also provide less opportunity for profit than the more volatile cyclical sectors. As the year approaches the proverbial “best six months,” the period at the end of the old saying “sell in May and go away,” investors must ask themselves a simple question: Are the steady returns of predictable growth and a strong dividend a better choice than the bigger swings and more volatile gains and losses provided by riskier stocks? Anyone with a definitive answer to that question will be laughing all the way to the bank.