More Income-Generating Investments – Consumer Staples

I posted my first piece on income investments on this space in April 2011.  Since then, some other ideas have occurred to me and I thought I’d pass them along.  If you have not read the earlier piece, I suggest reading it after you read this one.  There is no order to the investment suggestions.  Simply, it is your money, and you should see which investments make the most sense to you.  Before I list the ideas, here are a few basic bits of advice which have survived the test of time. First, unless you need the income today, set up everything for dividend reinvestment.  Compounding of interest over time is the greatest wealth creator there is.  Keep it simple.  If you do not completely understand a company’s products or the sources of the firm’s revenues, don’t buy.  There is no shortage of excellent long term investments which are easy to understand.  Finally, don’t try for home runs; be willing to be a singles hitter.  Many times you will have a home run without trying for one.  Time, patience and dividend reinvestment can achieve that for you.  And should you have an investment double, don’t get greedy.  Sell half of the position.  You have locked in your profit, you still hold the investment, and in casino parlance, you are now playing with “house money.” It seems to me to be common sense, but I talk to so many people who are reluctant to take profits.  They moan about paying taxes on capital gains.  I have always felt that if you are paying taxes on an investment, you are making money.  That can’t be too bad.   Getting greedy will cost you at some point.

The Consumer Staples Sector

This sector has always been a favorite defensive choice.  Staples are defined as goods with a steady demand that are bought often and consumed routinely.  Consumer staples are the industries that sell food, beverages, alcohol, tobacco, prescription drugs and household products. The logic behind investing in the consumer staples sector  is that however good or bad things might get, people will eat, drink, bathe, do laundry, etc.  At the point that using toilet paper, showering with soap and shampoo and washing your clothes falls out of favor, I will look to seriously reduce my already sparse social life. There are two Consumer Staples ETFs I’m partial to which both offer good diversification, low expenses and a yield that is good, but not great.  Both had had much more enticing yields, but have increased in price as investors sought safety.  Still, if you want to buy the sector in one investment, they are good choices.

SPDR Select Sector Consumer Staples ETF– (VDC) – Selling at around $31.00 and yielding 2.67%, this ETF has an expense ratio of just .20.  I have not owned this offering.

Vanguard Consumer Staples ETF – (VDC) – Recent price around $79.00, yielding 2.64 % with an expense ratio of .24, I have owned this ETF for some time.  Recently I sold the bulk of my position for three reasons.  VDC had risen more than 50% from my purchase price bringing the yield down to its current levels, and it seemed a good point to lock in my profits.  Secondly, the ETF is currently trading at a premium to its NAV.  In layman’s terms, this means the price of the ETF is higher than the sum of the stocks held in the fund.  Buying at a discount to NAV makes sense, buying at a premium does not.  Finally, I saw much greater dividend yields available in some of the companies held in the ETF.  There is increased risk in this approach, as the investor is exposed to the individual company risk as well as the sector risk.  But the difference in the dividend yields convinced me to make the move.  Here are some of my favorites in the sector.

Unilever (UL) – Based in London, Unilever sports a 4.0% yield and is currently selling around $ 32.00.  You probably use several Unilever products every day without knowing it.  Their brands include Lipton, Hellman’s, Bertolli, Dove, Lifebuoy, AXE, Vaseline, Skippy, Ponds, Close-Up, TRESemme, Surf, Wishbone, Ragu, Breyers and Ben & Jerry’s’, to name a few.  These are just the brands familiar to Americans.  There are many more which are the leaders in their categories in Europe and other parts of the world.

H.J. Heinz (HNZ) – Known primarily for ketchup, Heinz sells for around $ 53.00 and yields 3.50%.  In addition to its market-leading ketchup, Heinz also makes pickles, gravies, vinegars, horseradish, relish, tartar sauce, marinades and baby foods.  Among its better known brands are Lea & Perrins Worcestershire sauce, Ore-Ida potatoes and HP Steak sauce.  A recent acquisition of Coniexpress S.A., one of Brazil’s biggest producers of tomato products has given HNZ a big boost in one of the world’s booming emerging markets.

Nestle’ (NSRGY) – This Swiss-based giant is one of the premier international blue chips.  At a recent price of $ 63.00 and yielding around 3.0%, Nestles’ list of global brands includes Perrier, Poland Spring, Buitoni, Stouffers, Haagen-Dazs, Purina and Gerber.  Nestles’ chocolates include Crunch, Butterfingers, Kit Kat and many more.  Name brands bring pricing power, and Nestle’ is a global leader.

Proctor & Gamble (PG) – Selling at about $61.00 and yielding 3.40%. PG is the ultimate multi-national Consumer staples powerhouse.  A partial list of PG’s products include Clairol, Crest, Cover Girl, Gillette, Head & Shoulders, Ivory, Olay, Old Spice, Oral-B, Scope, Tampax, Bounty, Charmin, Comet, Duracell, Febreze, Joy, Pampers, Tide and Vicks.  It is the rare household that does not use some PG product daily.

While these are the investments I own, there are many others just as attractive.  To look at them more closely, go to Google, enter the ticker, and you will bring up many sites offering research.  I usually use Yahoo Finance, as I find it easy to negotiate, and to locate what I want.  Some that might be worth a look include:

Con Agra Foods (CAG) – Around $23.00 and yielding 4.0%.

Kimberly Clark (KMB) – @ $65.00, yielding 4.30%.

Kraft (KFT) – @ $ 35.00 and yielding 3.40%.

Diageo (DEO) – @ $ 78.00 yielding 2.60%

With the market gyrating like a bungee cord, many of these companies have been pushed down near their 52-week lows.  If you have a boatload of cash, there is probably no need to be in the market at all.  But if you are like me, and income is still a very viable concern, consumer staples are a fine place to generate consistent income.  They are certainly worth a look.

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2 Comments on “More Income-Generating Investments – Consumer Staples”

  1. Jimmymimi Rosenwald Says:

    Hi Jud
    Enjoyed the purse story as well as the LizTaylor. Interesting investment pilosophy. I like it. Good yields are important and they are out there as you have found.
    The black lines down each side of the page are a bit disconcerting. Can you move them?
    Good luck with this. What’s the goal??

  2. Jimmymimi Rosenwald Says:

    Good luck with this!!

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