Primarily, the GARP strategy favors investing in companies with consistent earnings and sales growth, reasonable valuation, and solid financial strength, combined with strong profitability. The underlying investment thesis of the S&P 500® GARP Index seeks to track the GARP strategy and earn higher risk-adjusted returns than its underlying universe over a long-term investment horizon. While consumer staples provide a wealth of benefits, they also have drawbacks. These stocks’ ubiquitous nature and dividend payments may cause them to be overvalued, limiting your potential for long-term growth opportunities. You can mitigate the risk of individual losses in the sector by investing in a consumer staples ETF, which offers an easy route to diversified sector exposure.
For that reason, consumer staples stocks can play a defensive role in investors’ portfolios, providing stability and decent long-term returns when other sectors are weak. The largest consumer staples companies have been in business for decades, some for even more than a century. Since they sell products that are always in demand, consumer staples stocks sustain long-term brand value—and that translates into long-term stock value for investors. 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.
- “At this stage we think more patience is needed before stepping in, particularly if 2024 estimates need to move lower across the board given the uncertain backdrop.”
- Among other achievements, the company pioneered vertical integration by buying out its early bottlers, minting a number of millionaires in the process.
- Investing in various consumer staple companies can diversify your portfolio and potentially reduce risk.
- You can invest in the consumer staples sector through individual stocks or ETFs.
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 vintage fx 2023 and offered more discounts. But this led to decelerating revenue growth in the sector in 2023, which weighed on the stocks even as companies delivered better-than-feared earnings. Higher interest rates also lured many investors toward fixed income and away from dividend-paying stocks. The consumer staples sector encompasses makers of everyday items like packaged food, toothpaste, and dish detergent.
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The company also sells private-label merchandise and operates gas stations, pharmacies, optical centers and tire installation centers. The company has also proven its ability to adapt to changing consumer preferences. Two examples include the Walmart+ membership program and the ongoing integration of online and in-store shopping. Discount retailer Dollar General (DG) recently confirmed those spending pressures among its customer base. The company also predicted household budget constraints would continue into next year.
Upcoming dividend of CA$0.56 per share at 2.6% yield
These companies tend to represent more stable investments, as consumers don’t slow their spending on these products when tough economic times hit. This stability and ubiquitous need make the consumer staples sector relatively resilient to economic downturns. Consumer staples stocks are a popular choice for investors looking for defensive stocks that can provide a steady income stream and protect their portfolios during periods of market volatility. However, these stocks come from companies already established within their respective industries, limiting their potential for growth from the time you invest. The importance of the consumer staples sector lies in its ability to provide investors with stability and consistency.
Consumer staples and economic cycles
According to Circana data (as reported in STZ’s second quarter report), Modelo and Corona Non-Alcoholic are Top 10 Share Gainers in their categories. Meiomi Bright and Fresca Mix Vodka Spritz also earned honors as top new brands. The company’s higher-end wine portfolio also gained share in the recent quarter, growing faster than the market.
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KDP sells Keurig-branded coffee makers and related products, packaged beverages and beverage concentrates in the U.S. and abroad. Schweppes, Hawaiian Punch, Yoohoo, Snapple and 7 Up are some of the company’s ready-to-drink brands. KDP also makes K-pods under the brand names Green Mountain, Swiss Miss, Donut Shop Coffee and McCafe. Colgate, like Mondelez, owns leading brands and earns the bulk of its sales outside the U.S. The company’s position in emerging markets is attractive, but the big story for Colgate is its evolving business strategy.
Comprising nearly 70% of the nation’s gross national product (GNP), consumer spending holds a lot of sway over the economy. Economic growth and decline are typically led by consumer spending, which is cyclical. Cyclical means there are ebbs and flows, or times when the consumer spends more and periods when they have more conservative spending habits.
Should You Invest in the Vanguard Consumer Staples ETF (VDC)?
ESG regulations refer to the rules and guidelines set by governments and regulatory bodies to encourage companies to consider and report on their environmental, social, and governance practices. These regulations are designed to promote responsible and sustainable business practices, which may set investors up to select investments primed for long-term success. The consumer staples sector divides into multiple sub-sectors depending on the products the company produces. Here are some of the largest subdivisions of the consumer sector and some of the major players in each industry.
Consumer staples are among the most stable types of stocks that return fairly consistently. 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. We may also receive compensation if you click on certain links posted on our site. While compensation arrangements may affect the order, position or placement of product information, it doesn’t influence our assessment of those products.
Thus, VDC is a good option for those seeking exposure to the Consumer Staples ETFs area of the market. Investors might also want to consider some other ETF options in the space. The ETF has a beta of 0.61 and standard deviation of 13.50% for the trailing three-year period, making it a medium risk choice in the space.
Sector Primer Series: Consumer Staples
As depicted in Exhibit 2, the weighted average total market cap of the index is less than one-third that of the S&P/NZX MidCap Index and more than double that of the S&P/NZX SmallCap Index. Unsurprisingly, it is far smaller than the S&P/NZX 50 Index or S&P/NZX 20 Index, which are heavily weighted to the largest New Zealand companies. S&P/NZX 50 Index defines the investable opportunity set for New Zealand fund managers. In doing so, it reaches beyond the S&P/NZX 50 Index, expanding the opportunity set while still utilizing size and liquidity criteria to support investability. There is a lower exposure to Energy in the mid- and small-cap indices, with the ninth heaviest sector weight in the S&P MidCap 400® and S&P SmallCap 600®, at 3.74% and 3.43%, respectively. For example, you can take variations in the employment rate as a proxy for falls in income.
Individual stock picking can be a very risky way of investing, and that means you should pursue this strategy with your eyes wide open. Certain segments of the consumer discretionary sector, especially retailers, are ripe targets for disruption by new e-commerce competitors. Moreover, growing online sales dilutes the power of well-known consumer staples brands. 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.
Unlike consumer staples, this sector is vulnerable to economic changes and can swing wildly when the stock market is turbulent. Consumer staples stocks are companies that produce and sell products we regularly need, like food and household products. They can also include companies that make tobacco products and fizzy beverages, like pop and sparkling water. Broadly speaking, consumer staples are essential products that we use daily such as food, beverages, household and personal care products. People buy staples in boom times and in bust times, which makes consumer staples stocks good performers no matter what’s happening in the broader economy. That’s why they’re often considered defensive safe havens during a recession.