This commitment can be viewed as a unique moat, safeguarding its market position. Companies that make home maintenance products like detergents and dishwashing soap fall into this category. Kimberly Ellis is a personal finance writer at Finder, specializing in banking and financial literacy. After teaching in public and private schools, Kimberly zeroed in on personal financial education to help families and kids develop lifelong money skills. She hails from New York City, graduating summa cum laude from Queens College with a BA in elementary education and mathematics, as well as a New York State teaching certificate. She’s also an aspiring polyglot, always in a book and forever on the hunt for the perfect classic red lipstick.
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- Many dividend aristocrats – companies that have increased their dividends each year for at least 25 consecutive years – are part of the consumer staples sector.
- Well-known companies include Altria Group (Marlboro cigarettes) and Diageo (Johnnie Walker and other liquor brands).
- An added perk is its higher dividend yield than the S&P 500 Index — even during a recession.
- At this time of writing, the broad-based S&P 500 index has slipped nearly 7% in the year to date, but the S&P 500 consumer staples sector is only down 4% for the same period.
Although the economic outlook remains uncertain, consumers are likely to continue to need the everyday products—from toothpaste to toilet paper— that staples companies produce and sell. When exactly sales volumes pick up may depend on the health of the consumer and economy. However, https://www.topforexnews.org/news/march-2021-fed-meeting-preview-3/ valuations in the sector remain compelling, especially given the potential for improving profit margins. When investing in consumer staples stocks, it’s vital to consider the tax implications and adopt tax-efficient strategies to optimize returns and minimize tax liabilities.
MarketBeat’s stock profiles can be an excellent place to start exploring financials. As stocks rise in price, dividend yields will fall if the size of the dividend does not increase as well. Conversely, if stocks fall in price and if the dividend payout does not change, then the dividend yield increases. Although there are no substitutes for consumer staples goods, consumers have a lot of options when shopping for the cheapest products. That makes the competition among suppliers very challenging in an environment where commodity prices are rising.
A sector that is defensive in an economic downturn.
Consumer staples are products people need to buy regardless of economic conditions, making the sector relatively stable. Additionally, companies producing these products often have established brand names and loyal customer bases, protecting against the competition. On the other hand, the growth potential of consumer staple companies https://www.day-trading.info/why-the-us-dollar-is-the-world-currency-2020/ may slow down and be vulnerable to changes in consumer preferences or regulatory changes. Consumer staples stocks can be a good option for investors seeking steady growth, solid dividends, and low volatility. Key for the sector in 2024 may be whether sales volumes improve, with consumers coming back to more brand-name items.
This has prompted some investors to consider defensive stocks as a cushion for their portfolios. Finder.com is an independent comparison platform and information service that aims to provide you with the tools you need to make better decisions. While we are independent, the offers that appear on this site are from companies from which finder.com receives compensation. We may receive compensation from our partners for placement of their products or services.
The demand for consumer staples goods remains fairly constant regardless of the state of the economy or the cost of the product. At the same time, fundamentals at many companies were squeezed by a challenged consumer. Inflation has pressured these companies for the past 2 years, with some brand-name companies losing market share to generic (also known as private-label) alternatives. In a bid to grow sales volume and market share—and responding to input costs that eased in the past year—some companies slowed their price increases in 2023 and offered more discounts.
This stability in demand contributes to a more predictable revenue stream for consumer staples companies. The consumer staples sector also often lures investors with its components’ rich dividend yields, which tend to be larger than those generated in other sectors. Because of their slow and steady nature, consumer staples stocks can also not only continue to pay dividends through recessionary periods but often continue to increase their payouts. According to “Dividend.com,” the annual dividend rate increased 8% over the 20 years ended in 2015.
In times of economic uncertainty, consumers prioritize spending on essential products rather than discretionary items. Some discretionary items include electronics, luxury apparel and other entertainment items. When the overall economy is doing poorly, consumer discretionary stocks tend to decrease in value while consumer staples remain more stable. Consumer staple stocks stand out as pillars of stability, offering low volatility, inelastic demand and attractive dividend yields. From household names like Nestlé and Procter & Gamble to stalwarts like Colgate-Palmolive, these companies provide enduring value and brand loyalty. While acknowledging limited growth potential and susceptibility to regulatory changes, strategic investors can leverage comprehensive analysis and tax-efficient strategies to fortify their portfolios.
Navigating consumer staples for long-term success
These companies are major contributors to the consumer staples sector, providing indispensable products and establishing a strong presence in the global market. As inflation soars, rising input costs – due to supply chain issues and increased raw material costs – could weigh on the consumer staples sector. This is compounded by many consumer staples companies facing higher freight and logistics costs as well. An exchange-traded fund (or ETF) is a collection of stocks that trade together as a single unit, usually to mimic the overall performance of a particular index or consumer sector.
What unique risks does the consumer staples sector face?
Some of the opportunities and market trends that have caught investor attention lately include the following. The most obvious example of regulatory framework in play within the consumer meet the frugalwoods staples sector is within the food product sphere. Food safety regulations aim to prevent foodborne illnesses by setting standards for food processing, storage and transportation.
Some examples of ETFs geared toward consumer staples include the Invesco DWA Consumer Staples Momentum ETF and the Vanguard Consumer Staples Index Fund ETF. You can also invest in an ETF that tracks the performance of international consumer goods, including the Global X MSCI China Consumer Staples ETF. Consumer staples stocks are often valued for their consistent dividend payments, making them appealing to income-seeking investors. Many companies in this sector have a history of distributing dividends, providing a reliable income stream in addition to potential capital appreciation. Consumer staples are considered to be non-cyclical, meaning that they are always in demand, year-round, no matter how well the economy is—or is not—performing. Also, people tend to demand consumer staples at a relatively constant level, regardless of their price.
Key characteristics of consumer staples stocks
Using a single purchase, you can use a consumer staples index fund, mutual fund or ETF to invest in various consumer staples. Not every firm will be able to raise their prices (to protect profit margins) without losing too many customers. Companies without strong brand loyalty are susceptible to consumers switching brands, a trend that intensified during the pandemic. Information on this page is for educational purposes only and not a recommendation to invest with any one company, trade specific stocks or fund specific investments.
If volumes rise, consumer staples companies will likely feel less pressure to ease prices, which would in turn help profit margins. Firms that boosted promotional and advertising spending in 2023 may have an added tailwind. Meanwhile, valuations in the sector have looked compelling versus the broader market and versus sector history.