Consumer staples have long been regarded as an essential component of any well diversified portfolio. With a market capitalization of $3.34 trillion, consumer staples represent a sizable share of the S&P 500 Index.
In the following article, we provide a brief overview of the trends in dividend payout and yields income investors can expect when investing in these types of stocks.
Composition of the Consumer Staples Industry
The consumer staples category represents essential products, such as food, beverages and household items, that individuals are either unable or unwilling to cut from their budgets regardless of their financial condition. Companies that provide such goods benefit from steady consumer demand at all stages of the business cycle.
Within the S&P 500 Index, consumer staples are broken down into six industries:
- Beverages
- Food and staples retailing
- Food products
- Household products
- Personal products
- Tobacco
However, Dividend.com breaks down the consumer category into 32 industries to help income investors determine the highest-yielding stocks. The following chart provides a breakdown of consumer staples companies by industry, company count and dividend yield.
| Industry | Company Count | Industry Dividend Yield * |
|---|---|---|
| Tobacco Products, Other | 2 | 5.19% |
| Photographic Equipment & Supplies | 2 | 4.53% |
| Cigarettes | 5 | 3.84% |
| Office Supplies | 2 | 3.17% |
| Business Equipment | 9 | 3.14% |
| Recreational Goods, Other | 3 | 2.77% |
| Packaging & Containers | 12 | 2.72% |
| Confectioners | 5 | 2.36% |
| Paper & Paper Products | 17 | 2.35% |
| Personal Products | 15 | 2.34% |
| Auto Manufacturers - Major | 8 | 2.25% |
| Dairy Products | 2 | 2.20% |
| Beverages - Brewers | 8 | 2.04% |
| Home Furnishings & Fixtures | 11 | 1.93% |
| Textile - Apparel Clothing | 15 | 1.88% |
| Processed & Packaged Goods | 23 | 1.83% |
| Food - Major Diversified | 10 | 1.77% |
| Farm Products | 11 | 1.59% |
| Sporting Goods | 5 | 1.59% |
| Rubber & Plastics | 12 | 1.47% |
| Housewares & Accessories | 4 | 1.43% |
| Beverages - Soft Drinks | 11 | 1.43% |
| Appliances | 4 | 1.38% |
| Auto Parts | 30 | 1.37% |
| Toys & Games | 5 | 1.30% |
| Recreational Vehicles | 8 | 1.20% |
| Beverages - Wineries & Distillers | 6 | 1.20% |
| Cleaning Products | 6 | 1.04% |
| Trucks & Other Vehicles | 5 | 0.89% |
| Meat Products | 8 | 0.89% |
| Textile - Apparel Footwear & Accessories | 13 | 0.66% |
| Electronic Equipment | 7 | 0.62% |
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While tobacco products and photographic equipment and supplies yield the highest dividends, a limited selection of companies skews the data. A total of 13 sub-sectors of the consumer staples industry yield 2% or more, making the industry among the more promising categories for dividend investors.
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Consumer Staples Industry: Dividend Trends
As of August 20, 2018, consumer goods as a whole yield an average of 2.01%, placing them fifth among nine sectors tracked by Dividend.com. Within consumer staples is a large number of high-yielding stocks with an established track record of increasing their payouts. Among those include Philip Morris International (PM ), which has increased its payout for ten consecutive years, and B&G Foods (BGS ), which has reported annual dividend growth since 2011. Both companies yield in excess of 5%.
Some of the more established divided plays in this sector include Dow blue-chips Procter & Gamble (PG ) and Coca-Cola (KO ). PG has grown its yield in each of the last 61 years, while KO has reported growth for 55 consecutive years.
Although consumer staples play an important role in defensive strategies, the sector has proven its worth across all stages of the business cycle. Case in point: consumer staples have outperformed all sectors except one going back to 1962. More importantly, the category has also outperformed the broader S&P 500 during the last three recessionary periods. From a dividend perspective, consumer staples presently have a higher yield than the S&P 500 Index and have outperformed the index most years going back to 2013.
That said, consumer staples have taken a back seat during the so-called Trump reflation trade. This period has been characterized by booming technology stocks and a strong earnings recovery following the introduction of corporate tax cuts. However, there’s strong reason to believe that multiple interest rate hikes by the Federal Reserve will rein in some of the enthusiasm on Wall Street, leaving consumer staples with a strong advantage.
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The Bottom Line
Consumer staples have posted mixed results over the past 12 months, but don’t let that deter you from the sector’s proven track record. This sector could provide the necessary refuge against volatility in the not-too-distant future.
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