You rely on consumer staples every day. They include daily essentials such as food and beverages, personal care products, and household and home care products.
People buy consumer staples regardless of the state of the economy, and the amount they buy is relatively fixed in good times and bad. In this way, the consumer staples sector behaves much differently than consumer discretionary businesses such as restaurants, hotels, and apparel, or consumer durables, which are long-lasting products such as furniture and electronics.
Consumer staples companies may not have the highest earnings growth or year-over-year revenue growth because these stocks tend to be large, mature companies. Historically, the sector has experienced relatively little disruption, but these stocks make up for modest growth with low price volatility, reliable profits, dividends, and defensive positioning.
Advantages
Advantages of consumer staples stocks
Consumer staples stocks function in a non-cyclical manner, meaning they offer investors safety during recessionary climates. Since these companies sell goods such as food and cleaning products that consumers rely on regardless of the state of the economy, they tend to generate solid profits even in weak economies. For instance, a number of consumer staples companies thrived during the early stages of the COVID-19 pandemic as consumers stocked up on essentials and avoided spending on discretionary purchases such as travel and restaurant meals.
More recently, that spending has shifted back to discretionary categories, weighing on some consumer staples stocks such as Clorox (CLX -0.59%), which had earlier benefited from the demand for cleaning products.
Consumer staples are noncyclical, meaning they offer investors safety during recessionary climates.
Some consumer staples stocks are Dividend Achievers -- companies that have increased their dividend payouts every year for at least 10 consecutive years. For this reason, consumer staples stocks are often popular with retirees and other investors seeking long-term income and security. Many offer better dividend yields than an S&P 500 (SNPINDEX:^GSPC) exchange-traded fund, which currently pays a dividend yield of roughly 1.5%.
Because consumer staples companies operate in stable sectors and sell products that are always in demand, the biggest ones have been around for a century or more. Their longevity is a reflection of their brand strength, their history of acquiring smaller brands, and their ability to endure a wide range of challenges and economic cycles.
One important factor to monitor when looking at a consumer staples company is its ability to pass on cost increases. Although this issue often takes center stage during inflationary periods, it is always an important component of growth. Simple price increases, changing packaging sizes, and production innovation are all vital tactics in the industry. In inflationary periods, costs for ingredients, labor, and distribution often rise faster than a company’s ability to pass on price changes. There can be a period of margin weakness that will likely be temporary for the best-managed consumer staples companies. Price increases also need to be balanced against the risk of consumers trading down to cheaper alternatives.
Best consumer staples stocks
Best consumer staples stocks to buy in 2024
Just as you’re familiar with many consumer staples products, you’ll likely be familiar with many of the top stocks in the sector, such as Procter & Gamble (PG -0.37%), PepsiCo (PEP 0.29%), Philip Morris (PM -0.21%), and Unilever (UL -0.1%).
1. Procter & Gamble
1. Procter & Gamble
Procter & Gamble is best known for its marquee brands such as Tide, Gillette, and Crest. The household and personal care company is almost 200 years old. A large number of its brands hold the No. 1 or No. 2 market share position in their categories, including paper products, laundry detergent, diapers, and beauty products. P&G is also a Dividend King.
P&G is currently developing innovative products, including the nontoxic insect repellent Zevo. In 2019, it released a line of plant-based cleaning products called Home Made Simple. In 2021, it launched Crest Whitening Emulsions. After streamlining its business by selling off non-core brands, restructuring, and cutting costs, P&G's position is as strong as ever.
Like other consumer staples companies, P&G received a healthy boost from the pandemic, and the company has also performed well in the inflationary era as it's been able to pass along price increases to its customers. In fiscal 2024, which ended on June 30, organic sales rose 4%, and core earnings per share jumped 12%. Notably, the organic sales gain was driven by a mixture of higher volume, price increases, and it's selling more higher-priced items. The company is hitting on all cylinders.
2. PepsiCo
2. PepsiCo
PepsiCo is much more than its namesake beverage brand. The company also owns Frito-Lay and Quaker, as well as popular drink brands such as Mountain Dew and Gatorade. Its Frito-Lay snack business generates almost as much revenue in North America as its beverages, and that business has been a source of growth while soda sales have slowed in the U.S. and around the world. With its global brands and distribution, Pepsi enjoys many of the same advantages as industry giants P&G and beverage company competitor Coca-Cola (KO -0.19%).
Because of its exposure to the restaurant industry, Pepsi is subject to demand in the consumer discretionary channel, which affected it in the early stages of the pandemic. However, with the help of the strength of its brands, it's been able to capitalize on inflation by raising prices and growing profits. For example, in 2023 organic revenue jumped 9.5%, driving core EPS up 14%.
Pepsi has also grown through acquisitions. In 2018, it acquired SodaStream, which gave the company a leading position in countertop soda-making. It also bought energy drink maker Rockstar Energy in 2020.
PepsiCo recently became a Dividend King, having raised its quarterly payout for 50 years in a row, which shows that it’s an attractive stock for income investors.
3. Philip Morris
3. Philip Morris
Philip Morris (PM -0.21%) is one of the three global tobacco giants, but the company has the strongest position of the three. Philip Morris was formed when Altria and Philip Morris split in 2008 with Altria retaining the domestic business, while Philip Morris took the international markets.
That's proven to favor Philip Morris as international tobacco markets have been much more resilient than the U.S., where smoking has been steadily declining for decades.
In addition to its exposure to more smoking-friendly markets, Philip Morris has also outperformed peers like Altria and British American Tobacco in next-gen, smoke-free products, which now make up roughly 40% of Philip Morris's revenue and a higher percentage of its gross profit.
The company has found success in IQOS, its heat-not-burn tobacco sticks, which uses tobacco rather than the e-liquid that vapes use, and heat to a temperature where it turns into vapor rather than smoke. As of the second quarter of 2024, there were more than 30 million IQOS users worldwide, and the number was growing. The company is also set to launch IQOS in the U.S. later this year.
Additionally, the company's acquisition of Swedish Match in 2023 has paid off, giving it ownership of the popular Zyn oral nicotine pouches, whose shipments jumped 50% to 135.1 million cans in the second quarter of 2024. Philip Morris is also expanding production at its Kentucky Zyn facility and adding a new one in Colorado.
Finally, Philip Morris is also reliable dividend stock with a yield of 4.1%.
4. Unilever
4. Unilever
Unilever has a similar business model to Procter & Gamble as a conglomerate whose products span food and beverage to personal care, home care, and beauty and health. It's also known for its prolific use of mergers and acquisitions; the company is in the process of spinning of its ice cream business, which includes Ben & Jerry's and Magnum. It also recently sold its tea business, including the Lipton brand, for $5 billion to private equity firm CVC Capital Partners.
The company has also received attention from activist investor Nelson Peltz – who was instrumental in turning Procter & Gamble’s business around – and has been added to Unilever’s board of directors. Peltz pounced on the company after its failed acquisition of GlaxoSmithKline's (GSK -0.12%) consumer health business. Peltz trimmed part of his stake in the second quarter, indicating he may be satisfied with the turnaround in the business.
Unilever continues to deliver growth even in the face of global inflation. Organic sales growth was up 4.1% in the first half of 2024, and the company is a solid dividend payer with a yield of 2.8%.
With iconic global brands such as Dove, Knorr, and Hellmann’s, the company has a strong brand portfolio to lean on. Unilever appears to have a rock-solid future.
ETFs
Best Consumer staples ETFs
For investors who prefer exposure to the whole consumer staples sector rather than picking individual stocks, buying shares in an exchange-traded fund (ETF) is the most sensible option. The chart below shows three consumer staples ETFs:
| Fund Name | Expense Ratio |
|---|---|
| Consumer Staples Select SPDR Fund (NYSEMKT:XLP) | 0.09% |
| Vanguard Consumer Staples ETF (NYSEMKT:VDC) | 0.1% |
| iShares U.S. Consumer Goods ETF (NYSEMKT:IYK) | 0.4% |
All three ETFs have Procter & Gamble as their No. 1 holding. PepsiCo and Coca-Cola show up in the top six while turning up lower down on two of the three lists. The iShares U.S. Consumer Staples ETF doesn't include retailers, but the other two ETFs have giants such as Walmart (WMT -1.22%) and Costco (COST -1.72%) making the cut.
In addition, all three ETFs own popular consumer staples stocks such as:
Related investing topics
Are consumer staples stocks right for you?
The best consumer staples companies tend to have consistently strong organic sales, leading market shares, and attractive dividend yields. Although the industry sees relatively little innovation and growth, consumer staples products tend to be timeless, and these companies are likely to continue to endure.
Consumer staples companies have an excellent ability to withstand recessions, increase their dividends, and post consistent, incremental growth. All of those characteristics make them good choices for investors looking for reliable, income-producing stocks.
