For many income funds, the consumer staples sector has been a happy hunting ground when it comes to finding companies delivering consistent and growing income. The sector benefits from widely recognised brands that encourage regular purchases from loyal consumers, so these stocks tend to be relatively defensive during economic slowdowns.
Many companies also have excellent records of income growth over several economic cycles. Amid all the hype and interest in artificial intelligence (AI), the sector has derated against the broader market despite its companies delivering resilient growth in earnings and cash flow. Here we highlight three stocks that we think offer attractive long-term opportunities.
Three consumer staples stocks to consider
1. PepsiCo (Nasdaq: PEP) is best known for its beverages, with brands including Pepsi, Mountain Dew and Gatorade, making it the dominant market player alongside Coca-Cola. However, the jewel in its crown is the snacking division, Frito-Lay, whose brands include Lay’s and Doritos. PepsiCo enjoys a market share of almost 40% in the savoury snack category and has seen consistent organic growth over a number of years. Importantly, this is a more profitable part of the business, generating close to half of Pepsi’s overall earnings despite accounting for less than a third of the company’s revenues. Pepsi is also expanding further beyond the US, where there is ample scope for growth given the relative underpenetration of its brands and snacks in general. The company is a so-called Dividend Aristocrat, having increased its dividend every year for more than 50 years. It currently yields over 3%.
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2. Unilever (LSE: ULVR) has been in business for nearly a century. It started out selling soap and margarine but is now a global powerhouse with leading brands across categories such as personal care, home care, nutrition and beauty. Despite being listed in Europe, the company enjoys high exposure to faster-growing countries such as India. Around 60% of the group’s overall revenues stem from emerging markets. Unilever’s beauty division, Unilever Prestige, has also been a strong growth driver in recent years, notching up 13 successive quarters of volume growth, with brands such as Dermalogica and Paula’s Choice leading the way. The company offers a robust dividend yield of just over 3% per annum, firmly underpinned by strong cash-flow generation and a healthy balance sheet.
3. Procter & Gamble (NYSE: PG) was founded in 1837 and is one of the world’s largest consumer goods companies. It boasts market-leading brands across a number of categories, including Pampers, Tide, Head & Shoulders and Oral-B. Innovation has been a key part of P&G’s success, driven by its industry-leading expenditure on research and development, which helps to secure further gains in market share. One recent example would be Tide, the laundry brand. P&G released a version of the detergent in the form of a tile that uses microfibres to create layers of soap, reducing the need for the liquid and fillers normally found in laundry capsules. The tiles offer superior cleaning power and ease of use at lower wash temperatures. P&G has paid dividends for well over 100 years and has raised its payout every year for more than the past 60, making it another Dividend Aristocrat.
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