By Lawrence C. Strauss
Amid all of the market jitters pertaining to the intensifying war in the Middle East, tariffs, and artificial intelligence, consumer-staples stocks can offer income investors some shelter.
True, the sector isn't cheap on an absolute basis, trading at more than 20 times 2027 earnings estimates, partly due to its recent price appreciation. The State Street Consumer Staples Select Sector SPDR exchange-traded fund has returned about 14% this year, one of the better sector performers and well ahead of the S&P 500 index's flattish showing.
Still, as Bonnie Herzog, a longtime consumer-staples analyst at Goldman Sachs, points out, the sector ETF's forward price/earnings ratio was recently trading at a 4% discount to the broader market, versus a slight premium on average over the previous five years.
"There's been a lot of rotation from tech, from the concerns on AI, as investors look for safety, consistency, and stability," she says.
Investors searching for income in this sector need to be selective.
"I don't think you need to own the sector broadly," says Stephanie Link, chief investment strategist at Hightower Advisors, who points out that the U.S. economy remains strong. "But there are a couple of names that you can own just so you can sleep at night."
Those include Colgate-Palmolive, which yields 2.1%, and PepsiCo, 3.4%, she offers.
The staples sector consists of several disparate subgroups, and they need to be analyzed separately. They include beverage makers ( Coca-Cola, for example) and household products companies such as Procter & Gamble and Colgate-Palmolive.
Coca-Cola, which yields 2.6%, is a member of the S&P 500 Dividend Aristocrats, which have paid out a higher dividend for at least 25 straight years.
In February, Coke's board announced that it would boost the company's annual dividend for the 64th straight year, raising the payout to $2.12 a share, up 4% from $2.04.
"I do think that at a high level, beverage companies are durable, especially as a lot of them have evolved their portfolios over the last handful of years," says Herzog.
That should bode well for their dividends.
Herzog rates PepsiCo as a Buy, citing in a note "its strong brand portfolio and long-term growth opportunities" in food, including snacks, and beverages.
In addition to focusing on its flagship Pepsi brand, the company has innovated in various ways as consumers become more interested in health and wellness. Last year, for instance, PepsiCo acquired Poppi, which makes low-calorie drinks with less sugar, for a net purchase price of $1.65 billion.
Filippo Falorni, a consumer-staples analyst at Citigroup, says that a plus for staples companies is that they aren't under the same pressure from AI that some software companies are facing.
Falorni favors the household product group within the broader staples sector, partly because it isn't vulnerable to the growing popularity of GLP-1 drugs for weight loss. That adoption is expected to gain even more momentum once these drugs are more widely available in a pill form. Companies that Falorni has a Buy rating on include Colgate-Palmolive and Procter & Gamble.
"That's really the part of consumer staples that is definitely more defensive versus the rest, especially the packaged-food sector -- but also significant parts of the beverage sector," he says.
Colgate-Palmolive relies heavily on oral care, including toothpaste, which accounted for 44% of total sales last year. However, its Hill's Pet Nutrition segment chipped in 23% of net sales, or about $4.6 billion.
"Everyone kind of understands the oral care business, but the pet food side is a very attractive business," says Falorni.
Hill's positions itself as a healthy option to help owners manage their pets' various health issues, including digestive, kidney, and weight concerns.
Like Coca-Cola, Colgate-Palmolive is an S&P 500 Dividend Aristocrat. Last year, the company boosted its quarterly payout by 4%, to 52 cents a share from 50 cents.
Another longtime dividend payer in the household product group is Procter & Gamble, which yields 2.6% and is also a Dividend Aristocrat.
The company, whose signature brands include Tide detergent and Bounty paper towels, derives of about half of its sales from the U.S. Sales there have been challenged, Falorni says, partly owing to lower-income consumers feeling pinched.
But the company is taking steps to address that, partly via marketing expenditure and by trying to give more value to customers, he says.
At the same time, the company's international markets are "definitely doing better, especially China," says Falorni.
All of which has helped Procter to continue raising its dividend, most recently to a shade above $1.05 a share on a quarterly basis.
Elsewhere, Goldman Sachs' Herzog is more upbeat on beer sales, which have come under pressure in recent years. Potential tailwinds this year include the coming World Cup, which the U.S. is hosting along with Canada and Mexico, and the continuing celebration of the nation's 250th anniversary -- both good backdrops for beer drinking.
"It's a contrarian call, but I do think beer the category will be less negative in '26," Herzog says, citing easier comps. "It will decline, but not as much as it has in the last year or two."
She has a Buy on Molson Coors Beverage, which yields about 4%. Molson and its peers have encountered inflationary pressure from input costs such as aluminum.
"Their balance sheet's a lot stronger than it has been, and they are continuing to pay the dividend and buy back stock," Herzog says.
All told, the right staple companies look like a stable option for dividend investors in these volatile times.
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(END) Dow Jones Newswires
March 05, 2026 02:30 ET (07:30 GMT)
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