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Consumer staples makers have long been able to grow their businesses through good and bad economic times.
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Some of the best consumer staples stocks are Dividend Kings.
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One consumer staple Dividend King has a good yield and attractive valuation.
Quick, think about soda companies. What brand comes to mind? Probably Coca-Cola (NYSE: KO). That makes sense, given that Coca-Cola is one of the largest and best-known consumer staples brands in the world. But is it the smartest growth stock to buy if you have $1,000 to invest right now? Don’t hit the buy button until you read about this high-yield alternative.
From a big-picture perspective, Coca-Cola makes food, even though its products get their own category with the consumer staples space. Beverages are still a life necessity, even if its eponymous product is more for pleasure than need. The company is an industry powerhouse.
Not only is Coke one of the best known, and most beloved, beverage brands, but Coca-Cola happens to have a massive distribution network, impressive marketing skills, and powerful research and development chops. The company’s scale, meanwhile, gives it the wherewithal to act as an industry consolidator, buying up smaller brands and beverage concepts to round out its product portfolio. That, in turn, helps to keep Coca-Cola’s brands relevant with consumers.
The company’s business is so strong that it has been a longtime holding of Warren Buffett within Berkshire Hathaway‘s stock portfolio. If Buffett has put billions into Coca-Cola, why shouldn’t you put in $1,000?
There’s one notable reason: Investors have fully priced Coca-Cola’s shares. The stock’s price-to-sales ratio and its price-to-earnings ratio are both above their five-year averages, and the dividend yield is near 10-year lows. The business is doing relatively well right now, but virtually everyone seems to know it.
One of the other factors that sets Coca-Cola apart is its status as a Dividend King. But it isn’t the only Dividend King beverage company. Direct competitor PepsiCo (NASDAQ: PEP) has increased its dividend annually for 53 years and counting. Meanwhile, PepsiCo’s price-to-sales and price-to-earnings ratios are below their five-year averages, and its yield is toward the high end of its historical range. So, unlike Coca-Cola, PepsiCo looks cheap.
PepsiCo stands out on the valuation front, but it also stands out on the diversification front. Like Coca-Cola, it has a globally diversified business. But PepsiCo operates in the salty snack and packaged foods spaces, too. That gives it more levers to pull to support long-term growth and more businesses to lean on when one of its divisions is facing difficulty. And make no mistake, every company, no matter how good, eventually faces hard times. The best companies, which include Dividend Kings, are the ones that successfully manage through the hard times.
