5 Best Consumer Staples Stocks to Buy Now for 2020

5 Best Consumer Staples Stocks to Buy Now for 2020


Of the nearly 900 stocks in the consumer staples
sector, which are your best investment for dividends and protection from whatever the
stock market brings? I’m screening through all 900 companies
to reveal the five best consumer defensive stocks for your money. I’ll not only walk you through how to find
these stocks but show you two ETFs you can use to get instant diversification. We’re talking consumer staples stocks today
on Let’s Talk Money! Beat debt. Make money. Make your money work for you. Creating the financial future you deserve. Let’s Talk Money. Hey Bowtie Nation, Joseph Hogue with the Let’s
Talk Money channel. A special shout-out to all you in the nation,
thank you for spending a part of your day here. If you’re not part of the community yet,
just click that little red subscribe button. It’s free and you’ll never miss an episode. Nation, I am loving our sector stocks series
and more than 40,000 of you have tuned in to see the best stock picks from each sector. We’re five videos into the series and this
could just be my favorite for investing over the next year. Now we’ve talked about the state of the
economy in other videos, how this 10-year bull market is wobbling on the edge and the
factors I’m watching that could mean tough times for investors within the next year. But you can’t just sit out the market. Trying to time the next stock market crash
is like trying to drive over a bridge before it’s finished. Sometimes being too early is as bad as being
too late. Fortunately, consumer staples stocks are some
of the best long-term, high dividend stocks you can buy that will not only give you the
opportunity to stay in this market making money but also protect your portfolio if the
market crashes. If you look at the consumer staples fund,
in the green line here, against the broader market leading into the 2009 stock market
crash. Consumer staples stocks dropped less than
half of what we saw in the S&P 500 over the period. In this video, we’ll start by showing you
why consumer staples stocks are able to benefit from a strong market as well as protect you
from a crash. I’ll show you how as an equity analyst for
private wealth I used to pick these high yield stocks for clients. Then I’m going to reveal two consumer staples
funds ETFs and five of the best consumer staples stocks that should be on your radar for 2020. If you’re just joining us, we’re doing
11 videos to reveal the best stocks to buy in each sector of the economy. I’m looking at each sector from tech to
energy, consumer goods and utilities to show you how to find the best of breed companies
in each and create that diversified portfolio for growth and cash flow. This is hugely important because even though
I love those dividends in these defensive stocks, you have absolutely got to have investments
in those other sectors. It’s going to give you the diversification
you need to grow your portfolio no matter what the economy brings. If you’re coming in later to the series,
I’ll link in the first comment below the video to the most recent video. I’ll also be linking in the video description,
all the videos in the series so you can see all the stocks for each sector. Here we see the 11 sectors of the economy
and remember, each sector is made up of different industries that work in the same product or
service. And today we’re talking about all those
products you buy no matter what the economy does, the food, household and personal products,
the beverages and even maybe some of those adult beverages. We see that over the last five years, the
consumer staples sector has lagged the rest of the market pretty badly returning just
27% against that return of 51% on the S&P 500. Over the last year the sector has only returned
6.8% versus an 11% gain on the market. In fact, only the energy and health care sector
have done worse for returns. But there’s good reason to believe the staples
might just turn this around in 2020 and why you need these in your portfolio. You see, because consumer staple stocks pay
out such huge dividends, they behave a lot like bonds when it comes to interest rate
changes in the economy. When interest rates decrease, investors start
looking for high yields in bonds and stocks in this sector and the prices go up. When rates increase, investors can get higher
yields in other investments so they abandon the staples and prices drop. That’s what happened to consumer staples
over the last few years. You see here a chart of the consumer staples
sector ETF and the S&P 500, pretty much tracking each other perfectly from 2009 to late 2015. Sure enough though, when the Fed started raising
rates in December 2015, the pain started for these dividend stocks. The market started outperforming and consumer
staples flatlined. But we’re seeing the opposite of this play
out right now with the Fed cutting interest rates three times since July 2019. Investors are again searching for those high
yield dividend plays and could come back to consumer staples in a big way. So before I highlight those two funds and
the five stock picks in the sector, I want to show you two factors you can use to find
stocks on your own. Everyone in the nation knows, I’m not about
to just lay down five stock picks because that does nothing for you. DO NOT just come on YouTube or tune into CNBC
to get stock picks. Understand how you find these and use that
power to have that control over your money. DO NOT give someone on TV control over your
investments. Now these two factors are above and beyond
the fundamentals we talked about in the first video in the series. I’m using trends in revenue, operating margin
and catalysts to pick stocks in the sector series but these next two are extra ones you
absolutely must be watching for when you pick consumer staples stocks. If you’re just joining us, make sure you
find that link in the video description and watch the first video to see how we’re picking
these stocks. But the first factor here for consumer staples
stocks is going to be the payout ratio. The payout ratio is the single most important
factor for making sure that dividend on the stock is going to keep paying out. This measure is the percentage of a company’s
profits or net income is going to pay the dividend. The payout ratio is important for a couple
of reasons. First because a company stretching to pay
its dividend, pushing all the profits out the door to cover, probably isn’t going
to be able to pay that dividend for much longer. If a company is paying out 65% or 75% of its
profits to the dividend, it doesn’t take much of a hiccup in profits until they have
to cut the dividend. Also though, a company paying out much more
of its profits to investors probably isn’t saving enough back for growth versus its competitors. That’s going to mean missed opportunities
and lost market share, and eventually falling profits. So what I’m doing when looking at consumer
staples stocks is comparing the payout ratio across companies. There’s no right or wrong answer here but
you’re trying to find companies that already offer a solid dividend but are maybe paying
less of their profits out for that dividend, so companies that can afford to increase the
dividend. Finding the payout ratio means just taking
the annual dividend amount per share and dividing by the earnings per share. The next factor here before we get to those
two funds and five stock picks is making sure these companies have a quality balance sheet. This one takes a little more digging but with
rock-bottom interest rates, companies have been on a buying binge for more than a decade. They’ve been borrowing to buyback stock,
they’ve been borrowing to make big expensive acquisitions. And it’s led to a mountain of massive debt. In fact, it was this massive debt that killed
Kraft Heinz after its 2015 IPO from private equity. One of Buffett’s top picks that year and
it’s now trading for less than half its price because that debt took away the financial
flexibility to stay competitive. What you want to look for here is going to
be measures like debt-to-equity and how much of earnings are going to make the interest
payments. Again, just like that payout ratio, it’s
not so much the absolute level of debt or these measures but how they compare against
other companies. You want to be investing in companies with
relatively low measures of debt compared to their competitors. Now just like in the other videos, we’re
going to start off with a couple of consumer staples ETFs before we get to those five stock
picks. These funds are going to be a great way to
get that sector exposure if you can’t find individual stocks you like or maybe you just
want a little more diversification. Our first here is the Consumer Staples Select
Sector SPDR, ticker XLP, with a 2.6% dividend yield and an expense ratio of just 0.13% annually. The XLP holds shares in 33 companies in the
sector and based in the United States and has returned 12% annually over the last decade. You can see here it’s well diversified across
all the industries in the sector from beverages to food and household. For the other fund, I wanted to show you an
international option so we have here the iShares Global Consumer Staples ETF, ticker KXI. Like a lot of smaller funds, the expense ratio
is higher at 0.46% but the dividend is solid and this one is going to give you a broad
exposure to the global consumer. Half of the fund is invested in U.S. companies
but you’ve also got exposure to Europe, Australia and Asia. Here you see that the KXI and that larger
XLP fund have tracked each other pretty closely but there is some opportunity here when the
two move out of step, maybe positioning into the cheaper shares for the bounce back. Now I want to reveal five consumer staples
stocks I found that should be on every investor’s radar. I’ve got some bellwethers here, those popular
brands everyone loves, as well as a few surprises. I’ve ranked them here by dividend yield
so we’ll be counting down to the highest dividend in the sector. PepsiCo, ticker PEP, is our first pick and
its 2.9% dividend puts it on the bottom of the list but the total return on shares makes
this a solid investment. Shares have produced an 11.5% annual return
over the last decade, above the 10% annual return on shares of Coke. And I gotta tell ya, I like the taste of Coca-Cola
better but the fundamentals for Pepsi go down a whole lot easier. Between the two, they control over 70% of
the non-alcoholic beverage market which give them both massive pricing and distribution
power. Pepsi’s annual sales are almost exactly
twice that of Coca-Cola though and it’s payout ratio leaves a lot more room for growth. Pepsi pays out just 68% of its earnings to
cover the dividend versus Coca-Cola which needs 78% of its earnings to cover the dividend. Shares of Pepsi don’t come cheap, something
you’ll see in any stock in the sector, trading for a price of 24-times earnings. Profits are expected about 4% higher over
the next year though I would put them closer to six percent higher given management’s
history of beating expectations. We see a broad band of price targets for the
11 analysts covering Pepsi with a low target of $115 and a high target of $155 per share. Despite the lackluster targets, this is one
you can put in your portfolio and forget about and you’ll always know it’s going to produce. Next here is Kimberly-Clark, ticker KMB, the
$45 billion personal care products giant paying a 3.1% dividend yield. What I’ve tried to do here as we’ve seen
in those other videos in the series is to pick some of the best stocks across the different
industries in the sector. So here with KMB you’ve got personal care
products, we had beverages and snacks with Pepsi and we’ll see some of the other industries
in our next picks. What I really like about Kimberly-Clark though,
besides the fact it’s only paying about 61% of its profits to cover the dividend which
leaves a lot of room for growth, what I love here is that the company has been reinvesting
an average of $5 billion annually over the last five years into product development and
marketing. You don’t see that level of reinvestment
at its competitors so what I think could happen in the coming years is that KMB reaps those
benefits with faster revenue growth and cash flow. Shares trade for 19.6-times earnings which
are expected 5.8% higher over the next year but I think those surprise revenues start
to play out. Analysts have a low target of $123 per share
to a high target of $155 each for the stock over the next year and I like it at least
up to that $150 per share for a long-term bet. Now this next one is going to be one of the
big surprises here, Kraft Heinz, ticker KHC and its 4.9% dividend yield. I’ve warned investors against Kraft Heinz
since starting this channel and yes, even used it as the poster child for a bad balance
sheet earlier in this video. But I’m calling it. Shares are down almost 60% since the 2015
listing and there’s a lot to like about the stock going forward. Kraft cut its dividend late last year which
absolutely destroyed the shares but now it’s paying just 54% of earnings to cover the payout. That’s supporting cash flow, helping it
to pay down some of that debt and stay competitive in the market. The company has $2.3 billion in balance sheet
cash, is the third largest food and beverage manufacturer in North America…and let’s
not forget that Buffett’s Berkshire Hathaway still owns almost $11 billion in shares, that’s
more than 25% of the company and you better believe he’s pushing for profits. Shares of Kraft trade for just 11.2-times
earnings, making it one of the cheapest consumer staples stocks you’ll find. Earnings are expected to be down 13% over
the next year but margin gains reported last quarter make me think they can beat this number. This is a stock that analysts have all but
given up on with a low target of $23 a share and a high of just $34 each, right around
where it’s trading now. I don’t want you to think this is going
to be a magical ride higher. Investor sentiment is still negative on the
stock but there’s a lot of value here for investors willing to take a shot and hold
for the long-term. Big Lots, ticker BIG, is another risky one
but paying a solid 5.6% dividend here and some good fundamentals. Big Lots is kind of iffy here. It’s technically in the retail sector but
sells so much in that consumer staples segment that I included it here. And honestly, shares have been slammed for
the better part of two years, down 65% since January 2018, but starting to show signs of
a turnaround. Sales and cash flow have recently improved
and the company is in that discount space of retail so is more protected against the
death-by-Amazon that we see in other retail stores. Shares are trading for just 5.4-times earnings. Even with the 5.8% drop in earnings expected
over the next year, Big Lots is just 5.7-times earnings. This company is paying just 30% of its profits
out to support that 5.6% dividend yield. This is a small company, just $840 million
in market cap and is trading cheap on just about every metric. Analysts have a low target around $25 and
a high of $32 per share which is 48% over the current price. Now like Kraft Heinz, this one could still
be volatile and might take a year to realize that turnaround so you might consider using
the covered call strategy we talked about recently. That’s an options strategy I use to produce
immediate cash return and get near-term protection on some of my stocks. I’ll leave a link to that video in the description
below so make sure you check that out. Our cash flow machine here is Altria Group,
ticker MO, with a 7.2% dividend yield. Shares of Altria have been under pressure
for the last couple of years on disappointment over its e-cigarette acquisition Juul but
the assets have been written down and it could be ready to trade on a more stable footing. After the 2008 split, Altria is solely focused
on the U.S. cigarette and smokeless market which means it’s much less at risk to the
volatile international market. While tobacco use is in decline in the U.S.,
it’s a very slow rate less than a few percent a year and pricing power keeps sales fairly
stable. One catalyst for the shares, besides the valuation
which we’ll get to, is its 10% ownership of Anheuser-Busch which gives it a little
growth into that global beverages market. Shares trade for 11.3-times earnings which
are expected higher by almost 5.8% over the next year. This one has fallen well past the point of
value and has traded consistently around 13-times earnings which could put it at $57 a share
over the next year. In fact, analysts have the shares around $44
on the low end and up to $68 per share at the high end. Click on the video to the right for the five
oil stocks that should be on every investor’s radar in 2020. Dividend yields as high as 10% and upside
price appreciation. Don’t forget to join the Let’s Talk Money
community by tapping that subscribe button and clicking the bell notification.

22 thoughts on “5 Best Consumer Staples Stocks to Buy Now for 2020

  1. See the critical fundamentals we're using to pick stocks for this series and my favorite tech stocks to buy NOW! https://youtu.be/49Jr1O3rQAU

  2. I got into KHC as well at $25.50 mostly for the dividend but I believe over longer term we get back above $40. Another one I own is BGS which has a yield over 11%, are you familiar with that one?

  3. I cant wait till you cover the aerospace sector since i hold lockheed martin and im holding off on raytheon since i don't like the merger that they're doing

  4. Worrying about a stock market crash is comical for a number of reasons.

    When you purchase stock, you are technically shorting the dollar. When you worry about a stock market crash, you are worrying that the dollar will outdo stocks in the long run. Now that's pure comedy!

    Looked at another way, if you got into the market in the summer of 2008 before Lehman Brothers went belly up and all hell broke loose, then you got hit on the head with a coconut and fell into a coma for three years, you would've awoken in 2011 with two surprises:
    1. There was a huge start market crash and the financial world almost came to an end
    2. Your account is worth exactly the same as when you bought in three years ago before getting hit in the head.
    So if the biggest stock market crash since 1929 was yesterday's news after three years, then the moral of the story is that if you don't need access to your cash within the next five years or so, then who really cares what the stock market does. Just invest and get on with life!

  5. PEP is one of my fav stocks I own myself. Great overvieuw you give here like always. Thanks for sharing again !

  6. Can't go wrong with Pepsi.

    And if you are not buying altria right now, definitely need to get some of that!

  7. Thanks for sharing your suggestions for this sector. Has there been a substantive change in leadership at KHC? And, how much does management/stewardship factor into investing decisions?

  8. Hey Joseph, have you ever found correlation between consumer report ratings and stocks that are reported in their reports? I think consumer reports is one of the best kept secrets because they do no take advertisement money and the ratings are based on everyday real people.

  9. Hi Joseph.. vanguard has all 11 of those specialtie stocks that you are talking about.. would it not be better for a person to invest in each sector. Rather than buy individual tickets… why not but the whole 11 ETF specialty funds from vanguard? Ps. I am veryyyy new to investing I am 52 and would like to retire at 62 .. I can live on 2k amonth or slightly less and I should have me home payed off in 3 yrs. Your input would be much appreciated and I enjoy your views and knowledge on investing. I am subbed to about 10 others on YouTube. But you're channel I never miss when you post a new video.

  10. Thank you so much for all the info and the stock picks. I really love these series on the different sectors, but I have been waiting for this one for a while, since I needed consumer staples (and maybe some basic materials) in my portfolio for the sake of diversification.

    Keep up the great work.

  11. Great breakdown Joseph. The payout ratio is so important for looking at to get a better idea of how sustainable the dividend is

  12. I like your analysis, but you need to slow down a little I can’t keep up. And if you could slowly go through the the math would really help. And where to find the numbers you highlight. Thanks.

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