If you feel your portfolio needs some protection against the potential of a volatile stock market, you may want to move out of some of your growth stocks and play defense. Defensive consumer stocks are those that deal with staples. They pay a dividend and tend to be less susceptible to market pullbacks.
The idea here is that by playing it safer you won’t make as much money as you would with growth stocks, but you won’t be as likely to lose money if the market gets choppy. The companies in the consumer defensive category sell products that are always in demand. However, most of these stocks were flat to lower in 2017 as the broader stock market hit new highs on a regular basis and investors looked to companies that are primed to grow more aggressively. Nonetheless, if you want a few stocks in your portfolio that pay a dividend and can weather most storms, here are a few options. All figures are current as of February 7, 2018.
1. Kraft Heinz Company
Kraft Heinz (KHC) has been beating analyst expectations for earnings. The company sells well-known brands like Oscar Mayer, Heinz, Planters, Velveeta, Philadelphia, Lunchables, Maxwell House, Capri Sun, Ore-Ida, Kool-Aid, and Jell-O.
In 2017, KHC targeted cost cuts of $1.7 billion, focusing on efficiency to keep itself competitive in the packaged food business. It already sells in 31 countries, and it is not going away anytime soon.
Currently, the stock is recovering from a sharp drop in June 2017. It seems to have found support at around $75 per share, so investors will have to decide if this is a buying opportunity. The stock closed at $74.31 on February 6, 2018. The dividend may not grow in 2018. This is the price of safety. Investors will get steady income and some protection from losses.
- Average volume: 3,644,553
- Market cap: $90.532 billion
- P/E Ratio (TTM): 23.22
- EPS (TTM): 3.2
- Dividend: 2.50 (3.24%)
- YTD Return: -3.52%
2. Johnson & Johnson
Johnson & Johnson (JNJ) covers a wide range of companies in the healthcare industry, giving it a diversity that should appeal to investors. Among its brands are Listerine, Neutrogena and Tylenol. Despite being a more defensive play, the stock managed to gain 20.6% in 2017 in a market that has rewarded growth far more than defensive stocks.
After hitting an all-time high on October 23, 2017 of $144.35, the stock has pulled back below its 50-day moving average of around $141 per share, closing on February 6, 2018 at $131.83 per share. No longer technically overbought, the stock could be at a good buying point for some investors.
The company expects to boost sales by 4% to 5% over the next year and looks to benefit from both its investment to research and development and the impact of a weaker dollar.
- Average volume: 6,789,900
- Market cap: $355.534 billion
- P/E Ratio (TTM): 281.09
- EPS (TTM): 0.47
- Dividend: 3.36 (2.36%)
- YTD Return: -5.31%
3. Sysco Corporation
Sysco (SYY) is a food company that sells frozen foods, canned foods, dry foods and fresh meat, seafood and dairy. In other words, SYY is not going to run out of customers any time soon. The demand for its products will continue through the ups and downs of world economies, because these foods are not luxury items.
Sysco pays a dividend and offers some growth if the trend continues. The share price has been volatile since January of 2017 and climbed to a high of $64.19 in January of this year. The share price is down 1.42% year-to-date through its close of $59.64 on February 6, 2018.
- Average volume: 2,549,050
- Market cap: $30.805 billion
- P/E Ratio (TTM): 27.04
- EPS (TTM): 2.18
- Dividend: 1.44 (2.35%)
- YTD Return: -1.42%
The Bottom Line
You can buy consumer defensive stocks when they dip a little. This will give you a relatively low average purchase price as you build your position. Lately, many of these stocks have fallen more than a little, so get back in cautiously. All of these stocks are very likely to rebound when they see a pullback. (See also: What Are Defensive Stocks?)