Investing your hard earned money in stocks can be one of the most prudent decisions in your life. However, for your decision to bear fruit, you should choose the right kind of stock. You should never choose a company by just looking at its recent track record. There are certain sectors that always have a high level of demand, irrespective of the fluctuations in the market. Few examples of these sectors are consumer goods, healthcare, pharmaceutical etc. If you want to invest in companies that deal with consumer staples, the following are best bets for you.
Reasonable dividends but roaring growth
One of the best consumer staple stocks to invest in is Kroger Company (KR, Financial). The largest grocery chain in the U.S., Kroger, is based out Ohio and currently operates a massive number of 2600 stores all over the country. One of the main reasons for the company finding its place in this list is that it makes close to 40% of the goods that are sold under its brand name. Due to this, Kroger earns lion’s share from the profits gained through sales of its retailed products.
The company’s pay-out ratio is just about 20%; hence analysts believe that there is a large amount of surplus cash on hand for the company to be paid out in the future, giving out signals for dividend increases. Currently, the dividend rates are just reasonable at about $0.185 per share and the dividend yield is 1.1%. However the company can be trusted upon to add value to investors definitely in the long run through its revenues and margins. For last year, investors were paid out $12billion by the company, through share repurchases. Returns on equity were around 30%. All of these make Kroger a great buy, because the share prices are quite cheaper now due to market reactions. With new initiatives coming up, prices are only set to increase in the coming days.
The trend of share price movement of Kroger can be seen below.
Immense growth potential in ecommerce business
The next best consumer staple stocks to buy right now is Costco Wholesale Corporation (COST, Financial). This is the biggest warehouse operator in the U.S. and along with Walmart (WMT, Financial), rules the retail industry of the U.S. What makes Costco outperform Walmart is the quality of its products and services, revenues generated per warehouse ($150 vs. less than $100) and the business model. Costco is known for selling its products in bulk and offering sky-high discounts for its members. Around 70% of its profits come in the form of membership fees. This is why Costco is able to reap rich profits every year, in spite of the following – huge discounts on products, excellent wages to laborers and reasonable pay-outs of dividends for 11 consecutive years now.
At present, the quarterly dividend is around $0.355 per share and the dividend yield is 1%. The pay-out ratio of 27% spells positive news for investors as this means, Costco has lots of amount left free for further dividend increases. Recently it paid out $5 per share as special dividends for investors, leading to great customer satisfaction. One of the areas where Costco has immense growth potential to be tapped is ecommerce. For the first fiscal quarter of 2015, online sales of this segment reported a 20% increase from the same period last year. This year, this segment is expected to grow phenomenally, leading to a rise in share prices as well. It will be too costly to invest in Costco then; hence analysts recommend that this is the perfect opportunity to invest in the stock. The trend of share price movement of the retailer for the last few months is seen below:
Conclusion
Consumer products are always in vogue, and the demand never fades for them. This is why the above two consumer staple stocks are highly recommended by Wall Street analysts. Both of them have lots of scope for growth in the coming years; hence investors who buy these stocks now are likely to be rewarded handsomely if they are patient. One of the best features about these two stocks is that they are unperturbed by the volatility of the stock market and hence offer investors an element of “Stability” – a feature that they crave.
