Consumer Defensive Stocks – The Next Gem

Consumer Defensive StocksI recently eliminated one of my holdings in the consumer defensive sector and need to replace it in order to maintain my diversification goals. I sold off General Mills NYSE:GIS as it was not meeting my criteria for holding it in my portfolio anymore.

I have 2 options with respect to the consumer defensive stocks, I either:

  • Increase my position in an existing holding
  • Add another holding to my portfolio

Before increasing a position, I want to evaluate the options I have and see if there is a gem to invest in.

DISCLOSURE: Please note that links to merchants mentioned within this post might be using an affiliate link. Using an affiliate link means that, at zero cost to you, I might earn a commission if you buy something through that affiliate link.

Consumer Defensive Stocks

I find myself looking into 20 different consumer defensive stocks from the S&P 500 dividend achievers list. Of that list, 13 are S&P500 dividend aristocrats with 4 of them in the dividend king category. As a quick summary, here is what each of the classification means:

  • Dividend Achiever: A stock that has increased its dividend for 10 consecutive years.
  • Dividend Aristocrat: A stock that has increased its dividend for 25 consecutive years.
  • Dividend King: A stock that has increased its dividend for 50 consecutive years.

As you probably know, a longer streak doesn’t mean a better stock. There are many more criteria that must be evaluated but what a long streak tells us is the commitment to shareholder value the company has and its ability to manage the company’s cash.

WMT - Small

Walmart

NYSE:WMT

Market Trend

PG - Small

Procter & Gamble

NYSE:PG

Market Trend

KO - Small

Coca-Cola

NYSE:KO

Market Trend

PEP - Small

Pepsi

NYSE:PEP

Market Trend

MO - Small

Altria Group, Inc.

NYSE:MO

Market Trend

WBA - Small

Walgreens Boots Alliance, Inc.

NASDAQ:WBA

Market Trend

COST - Small

Costco

NASDAQ:COST

Market Trend

CL - Small

Colgate-Palmolive

NYSE:CL

Market Trend

KMB - Small

Kimberly-Clark

NYSE:KMB

Market Trend

TGT - Small

Target

NYSE:TGT

Market Trend

GIS - Small

General Mills

NYSE:GIS

Market Trend

SYY - Small

Sysco Corporation

NYSE:SYY

Market Trend

K - Small

Kellogg Company

NYSE:K

Market Trend

BF.B - Small

Brown-Forman Corporation

NYSE:BF.B

Market Trend

KR - Small

Kroger Co

NYSE:KR

Market Trend

CLX - Small

Clorox

NYSE:CLX

Market Trend

HRL - Small

Hormel Foods

NYSE:HRL

Market Trend

MKC - Small

McCormick & Company

NYSE:MKC

Market Trend

CHD - Small

Church & Dwight Co. Inc.

NYSE:CHD

Market Trend

SJM - Small

J M Smucker Co

NYSE:SJM

Market Trend

Consumer Defensive Stocks By Industry

Just by looking at the S&P500 Dividend Achievers and Dividend Aristocrats in the consumer defensive sector, we get a long list of stocks. In fact, we get 20 stocks and it’s a bit overwhelming to make a selection. To simplify the process, we can break it down by

To simplify the process, we can break it down by industry as a first step and pick the top consumer defensive stock from each industry or even eliminate industries if they don’t fit your portfolio strategy.

All stocks are grouped by sectors and industry to organize them for indexes and investors. It would make sense that not all stocks in a sector compete with each other so look for the competitors and find the best one.

Consumer Defensive Stocks by Industry

 

Consumer Packaged Goods

This Consumer Packaged Goods industry has the most stocks representing the Consumer Defensive sector and it is also the industry where I already have a significant exposure. My holdings are in PG and KMB which I find to be enough for this industry. Over 6% of my portfolio is in those holdings already. I have held KMB for a really long time and it has been one of my best performers over time.

I will admit that I favor household and hygiene products over the food products. The margin for food products is tight and there is a lot of competition as you can see in the list.

Retail – Defensive

There are 6 consumer defensive stocks in this industry and I don’t happen to have any. This is where my focus will probably be. All of you will recognize most of the companies in the list.

I can quickly eliminate Sysco and Kroger as their CAGR dividend growth for the past 10 years is below 10%.

Beverages – Non-Alcoholic

In the non-alcoholic beverages, we have two fierce competitors:

I currently hold Coca-Cola and assessing which of Pepsi or Coca-Cola should be in your portfolio will be for another day. I do not intend to add to KO for this round of investment, I would be interested in re-evaluating which one deserves a spot in my portfolio. So far KO has done well in my portfolio but I am not convinced it is the right stock. With that said, McDonald’s NYSE:MCD has done really well with new management. The non-healthy food business is not going out of business just yet.

Beverages – Alcoholic

I like this industry as people always like a good drink. Brown-Forman seems to have potential to meet my criteria but at the same time, alcohol is a discretionary spending after entertainment and I prefer to stay away from such market.

Tobacco Products

Regardless of the performance of Altria NYSE:MO, the tobacco industry is not really an investment I want in my portfolio.

Consumer Defensive Stocks – Short List

As you noticed, I eliminated 10 stocks since I am already exposed to the Consumer Packaged Goods and then 3 stocks were quickly eliminated from 2 industries (Beverages – Non-Alcoholic & Tobacco Products). I also eliminated the alcohol industry for now which leads me to the following short list.

I will be looking into each stock to make my final decision. The question of Amazon will probably come into play but it’s a long game for those businesses and technology can always change the competition. The choice will be between 3 dividend aristocrats and 1 dividend achiever. My selection should lead to a strong dividend growth stock.

WMT - Small

Walmart

NYSE:WMT

Market Trend

WBA - Small

Walgreens Boots Alliance, Inc.

NASDAQ:WBA

Market Trend

COST - Small

Costco

NASDAQ:COST

Market Trend

TGT - Small

Target

NYSE:TGT

Market Trend

DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.

DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.

Image courtesy of David Castillo Dominici - FreeDigitalPhotos.net