Consumer Defensive Stocks – Searching For The Next Gem

I 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; or
  • 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.

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&P 500 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.

Wal-Mart (NYSE:WMT)

PG - Small

Procter & Gamble (NYSE:PG)

KO - Small

Coca-Cola (NYSE:KO)

PEP - Small

PepsiCo (NYSE:PEP)

Altria Group, Inc. (NYSE:MO)

WBA - Small

Walgreens Boots Alliance, Inc. (NASDAQ:WBA)

Costco (NASDAQ:COST)

CL - Small

Colgate-Palmolive (NYSE:CL)

KMB - Small

Kimberly-Clark (NYSE:KMB)

TGT - Small

Target (NYSE:TGT)

General Mills (GIS)

SYY - Small

Sysco Corporation (NYSE:SYY)

Kellogg Company (NYSE:K)

BF.B - Small

Brown-Forman Corporation (BF.A, BF.B)

Kroger Co. (NYSE:KR)

CLX - Small

Clorox (NYSE:CLX)

HRL - Small

Hormel Foods (NYSE:HRL)

MKC - Small

McCormick & Company (NYSE:MKC)

Church & Dwight Co. Inc. (NYSE:CHD)

J.M. Smucker Co. (NYSE:SJM)

Consumer Defensive Stocks By Industry

Just by looking at the S&P 500 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 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.

  • Procter & Gamble
  • Colgate Palmolive
  • Kimberly-Clark
  • General Mills
  • Kellogg
  • Clorox
  • Hormel Foods
  • McCormick & Company
  • Church & Dwight Co. Inc.
  • J.M. Smucker Co.

I will admit that I favor household and hygiene products over 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.

  • Wal-Mart
  • Walgreens Boots Alliance
  • Costco Wholesale
  • Target
  • Sysco Corporation
  • Kroger Co.

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, 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 (NASDAQ:AMZN) 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

Wal-Mart

WBA - Small

Walgreens Boots Alliance, Inc.

Costco

TGT - Small

Target

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.

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