We dive into three top consumer defensive stocks to buy that will help hedge your portfolio against both inflation and a recession.
US inflation is near a 40-year high at 8.3%. The impact of this inflation is lower consumer spending on luxury goods and a sell-off of unprofitable stocks. A great way to protect your portfolio against such a harsh climate is to invest in consumer defensive stocks.
These stocks sell goods that people must continue buying to survive. They often have a history of increasing dividend payments, which provides a compounding cash flow for investors. Keeping this in mind, here are three consumer defensive stocks that may add stability to your portfolio.
The Procter & Gamble Company
Procter & Gamble (NYSE: PG) has a track record of increasing its dividend for the past 66 years, which is up 64.5% since 2012. By the end of 2022, the company expects to return $18 billion to shareholders, including $8 billion in dividends and $10 billion in share repurchases. This is great for investors as it reduces the shares available to the public, artificially increasing the market value. This is a popular strategy among large companies with few investment opportunities and immense piles of cash.
In Q3 2022, the company’s net sales were up 7% to $19.4 billion, while its earnings per share (EPS) were up 6% compared to the prior year. Procter & Gamble expects full-year EPS to grow between 3% and 6% from FY 2021. However, due to rising costs and foreign exchange headwinds, it is estimated that this growth will be on the lower end of the forecast.
Dollar General Corporation
The discount retailer, Dollar General (NYSE: DG), saw net sales increase in the first quarter of 2022 by 4.2% to $8.8 billion. However, operating profit and EPS declined roughly 18% and 15%, respectively. The company claims one reason for the fall in profits is the increased percentage of sales coming from the consumables category. These products generally have lower gross margins than other categories. It also experienced higher costs due to inflation and supply chain complexities.
The first-quarter results may have proved disappointing, but the company’s future outlook appears promising. Consumers may need to cut back on spending due to higher shopping bills, potentially increasing sales for discount retailers like Dollar General. The company’s current dividend yield of 0.98% may not seem like much but it has grown at a compound annual growth rate (CAGR) of 10.93% over the past 5-years, outpacing the current inflation rate.
Costco Wholesale Corporation
Out of the three companies mentioned in this article, Costco (NASDAQ: COST) is the top performer concerning year-over-year earnings growth. The company’s Q3 2022 net sales grew 16.3% to $51.61 billion from $44.38 billion last year. EPS also increased by 10.9% to $3.04 during the same period. Most of this growth came from the company’s physical locations. In 2004 the company began to pay dividends at $0.40 per share. Today, that dividend per share has increased to $3.60, representing a CAGR of 13%.
The membership fee is the company’s most profitable segment. It currently boasts 116.6 million cardholders paying $4.1 billion annually in membership fees. The renewal rate of the card in the US and Canada is an astonishing 92.3%. The company, which operates in a traditionally low-margin sector, generates higher profits than its peers due to the membership system.