The market has drawn back a bit lately, but for a little while there it looked like the S&P 500 might challenge its 2007 highs — set almost exactly five years ago, with an all-time high of 1,565.15 on Oct. 9, 2007.
Alas, the index has weakened and that high-water mark was not breached. And many investors are looking at five-year returns in the red.
But not all stocks are created equal, and investors who know where to park their cash when things get tough have seen outsized returns despite broader market headwinds.
Not quite. I’m actually talking about much more boring stocks — ones that buy-and-hold investors should know and love, which have proven themselves to be market trouncing investments despite their sleepy nature.
I’m talking about consumer staples.
Unlike high-growth tech and medical stocks come with a higher degree of risk and a demand for constant innovation to deflect disruption from competitors, consumer staples stocks are as simple as they come. But that stability — and, of course, the large dividends they offer — make them the perfect buy-and-hold investments to weather any downturn and deliver market-beating profits.
Here are a few top consumer staples plays all investors should have in their cupboard:
With dividends paid since 1935 and powerful brands that include Kleenex and Huggies, Kimberly-Clark (NYSE:KMB) is here to stay. But it’s not just a sleepy name that can’t deliver returns. Consider that since the market’s 2007 peak, shares are up 23%. Not bad vs. a flat market.
But even more impressive are the dividends rolled into those returns — giving investors a 51% gain since Oct. 9, 2007. So much for the idea of 10% annual returns in stocks being an unattainable goal, eh? Maybe hard-luck investors should consider rotating out of high-risk investments and into slow and steady consumer stocks like KMB.
Coca-Cola (NYSE:KO) is up more than 33% since Oct. 9, 2007, on a share price basis alone. When you take into account the dividend payments, you have a return of more than 53% in five years. That dividend is pretty bulletproof, too, paid consecutively since 1893 with more than 50 straight annual dividend increases. Coke stock just split 2-for-1 in July, too, so if you were afraid of buying shares because of the price tag, they are now well under $40 a pop.
Cereal giant General Mills (NYSE:GIS) has done even better. Up about 37% on a share-price basis and up 58% with dividends, the maker of Cheerios and Hamburger Helper has blown away the competition. The stock yields 3.3% in dividends right now and has an impressive history of boosting payouts. Consider that back on the October 2007 peak, GIs was paying just 20 cents quarterly — and now it’s dishing out 33 cents a quarter for a 65% increase in payouts over just five years.
There are plenty of others if you take the time to look around — PepsiCo (NYSE:PEP) is another, though I don’t like it as much as Coke, and Kraft Foods (NASDAQ:KRFT) seems to have potential in the wake of its Mondelez (NASDAQ:MDLZ) spinoff, though I would like to see more of this movie before passing judgment.
But you get the idea. The lesson here is that even with the economy tanking, people still have to eat, change the baby, brush their teeth, make breakfast and tidy up the house.
Consumer staples are just that — staples. And if you’re a buy-and-hold investor, you can’t go wrong with building a backbone of these stable (and growing) picks in your portfolio.
- The bullish charts continue for the Consumer Staples Select Sector SPDR (NYSE:XLP). (ETF Trends via Yahoo! Finance)
- Fidelity research shows that from 1963 to 2010, the consumer staples sector outperformed the top 3,000 U.S. stocks in 11 out of 12 down-market years. (Fidelity.com)
- Concerned about input costs and commodity inflation? Here’s a take on how consumer stocks will hold up amid rising costs. (Morningstar)
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP. As of this writing, he owned a position in Apple but no other stocks named here.