The 7 Best Consumer Staples Stocks Available Today

Income investors looking for high-quality dividend growth stocks should take a closer look at the consumer staples sector.

Of all market sectors, consumer staples hold the highest number of Dividend Aristocrats, a select group of 53 stocks in the S&P 500 Index, with 25+ consecutive years of dividend increases.

Of the 53 Dividend Aristocrats, 13 come from the consumer staples sector. Consumer staples are household essentials—products that people can’t (or won’t) do without, even when the economy enters a recession. Think food, beverages, tobacco, and household products.

These are typically stable businesses that sell products people consume on a daily basis, which gives them pricing power, and the ability to withstand recessions. Each stock mentioned in this article is on our list of 350 consumer staples stocks that pay dividends to shareholders.

The rankings in this article are derived from our expected total return estimates for every consumer staples dividend stock found in the Sure Analysis Research Database. This article will discuss the top 7 consumer staples dividend stocks in our research database, each of which we expect to generate annual returns of at least 10%+ per year.

No. 7: J.M. Smucker (SJM)

Expected Annual Returns: 11%

J.M. Smucker is a large food and beverage company. Its biggest brands include Smucker’s, Folgers, Jif, Crisco, Pillsbury, Hungry Jack, Café Bustelo, and Bick’s. It also has pet food brands including Meow Mix, Milk-Bone, Kibbles ‘n Bits, and 9Lives.

The company has four leading brands which each hold the #1 market share position.

SJM Brands

 

Source: 2018 CAGNY Presentation, page 11

The operating climate has become somewhat volatile for Smucker. In fiscal 2017, total sales fell 5%, while diluted earnings-per-share declined 11% for the year. The culprits were the company’s coffee and pet foods businesses in the U.S., which reported operating profit declines of 14% and 15% last year, respectively. Rising marketing and raw materials costs weighed on profitability in 2017.

Fortunately, conditions have improved so far in fiscal 2018. The company reported fiscal third-quarter earnings on 2/16/18, and beat analyst expectations for both revenue and earnings-per-share. Net sales increased 1% for the quarter, while adjusted earnings-per-share increased 25%, thanks largely to tax reform.

Despite the current challenges, we believe Smucker’s long-term growth potential is still intact, thanks to its strong brands. It also has exposure to growth categories, such as pet food.

SJM Pet Food

 

Source: 2018 CAGNY Presentation, page 17

According to Smucker, the pet food industry is growing at a 4% annual rate. Smucker is well-positioned to capitalize on this growth, with its top pet food brands. And, the company is expanding even further into pet food with the recent $1.7 billion acquisition of Ainsworth Pet Nutrition. Approximately two-thirds of Ainsworth’s annual sales are derived from its Rachael Ray Nutrish brand, which gives Smucker exposure to the premium pet food category.

For fiscal 2018, Smucker expects flat sales, but adjusted earnings-per-share are expected to rise 6%-8% thanks to cost cuts and share repurchases. Our long-term earnings growth estimate for Smucker is 5%-6%. Continued earnings growth allows the company to raise its dividend. Smucker has increased its dividend for 16 years in a row, and the stock has a current yield of 2.8%.

In addition, we have a fair value price estimate for Smucker shares at $135. With the share price currently at $111, we believe a rising valuation could add 3%-4% to annual returns. The combination of an expanding valuation, earnings growth, and dividends, could result in 11% annual returns for the stock.

No. 6: Church & Dwight (CHD)

Expected Annual Returns: 12%

Church & Dwight manufactures personal care and household products. Its major brands include Arm & Hammer, Trojan, Xtra, First Response, Nair, Oxi-Clean, and Orajel. Church & Dwight’s top 11 brands represent more than 80% of total sales.

Acquisitions have been the key to Church & Dwight’s growth. The company acquired 10 of its 11 core brands.

CHD Acquisitions

 

Source: 2018 CAGNY Presentation, page 14

On 5/3/18, Church & Dwight reported strong earnings. For the 2018 first quarter, revenue of $1.01 billion increased 15% year over year, and beat expectations by $31.5 million. Earnings-per-share also beat expectations, by $0.02 per share. Organic sales increased by 3.8% for the quarter.

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Disclosure: Sure Dividend is published as an information service. It includes opinions as to buying, selling and holding various stocks and other securities.

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