Loading the player...

What are 'Consumer Staples'

Consumer staples are essential products, such as food, beverages, tobacco and household items. Consumer staples are goods that people are unable or unwilling to cut out of their budgets regardless of their financial situation. Consumer staples are considered to be non-cyclical, meaning that they are always in demand, no matter how well the economy is performing. People tend to demand consumer staples at a relatively constant level, regardless of their price.

BREAKING DOWN 'Consumer Staples'

Consumer staples stocks can be a good option for investors seeking steady growth, dividends and low volatility. Companies that primarily sell consumer staples include Procter & Gamble, Kimberly-Clark and Phillip Morris. One can invest in consumer staples by purchasing the stocks of consumer staples companies or by purchasing mutual funds or exchange-traded funds (ETFs) that specialize in consumer staples.

Comprising nearly 70% of the nation’s gross national product, consumer spending holds a lot of sway over the economy. Economic growth and decline is typically led by consumer spending, which is cyclical in nature. However, spending on goods produced and sold by the consumer staples sector tends to be far less cyclical due to the low price elasticity of demand. The demand for consumer staples goods remains fairly constant regardless of the state of the economy. With some products, such as food, alcohol and tobacco, demand sometimes increases during economic downturns.

Although there are no substitutes for consumer staples goods, consumers have a lot of options when shopping for the cheapest products. That makes the competition among suppliers very challenging in an environment where commodity prices are rising. To compete on price, consumer staples producers must be able to keep their costs down by adopting new technologies and processes, or they must differentiate by introducing innovative products.

Why Consumer Staples Are Good for Your Portfolio

The consumer staples sector has outperformed all but one sector since 1962. For the 10 years ended March 2018, the consumer staples sector has returned 9.51% annually, beating the 8.79% return of the S&P 500 over the same period of time. More importantly, the consumer staples sector has outperformed the S&P 500 during the last three recessionary periods. Due to their low volatility, consumer staples stocks are considered to play a key role in defensive strategies. Buoyed by the persistent demand of it products, consumer staples companies generate consistent revenues, even in recessionary periods. As a result, consumer staples stocks decline far less during bear markets than stocks in other sectors.

The consumer staples sector also often lures investors with its components' rich dividend yields, which tend to be larger than in other sectors. Because of their slow and steady nature, consumer staples stocks can also not only continue to pay dividends through recessionary periods, but often continue to increase their payouts. The annual dividend rate increase over the 20-year period ended in 2015 is 8%. 

Further, consumer staples are important for diversification. Because these stocks tend to have opposite performance with consumer discretionary stocks in market recessions, they can help being balance to a portfolio. They tend to bring in consistent earnings that support their dividend yields unlike the boom and bust cycles of riskier high-growth stocks, though more growth is available for consumer staples as they expand globally. 

  1. Consumer Discretionary

    Consumer discretionary is an economic sector that comprises items ...
  2. Food Industry ETF

    A food-industry ETF is an exchange-traded fund investing in food ...
  3. Defensive Stock

    A defensive stock is one that provides a constant dividend and ...
  4. Income Effect

    The income effect is the change in demand for a good or service ...
  5. Sector Fund

    A sector fund is a fund that invests solely in businesses that ...
  6. Services Sector ETF

    The services sector ETF is an exchange-traded fund (ETF) that ...
Related Articles
  1. Trading

    Active Traders Are Bullish on Consumer Staples

    Technical buy signs on the charts of companies from across the consumer staples sector suggest that now is the ideal time to buy.
  2. Investing

    VCSAX, FDFAX, RYCIX: Dividend-Paying Consumer Staples Funds

    Learn about the consumer staples sector, including performance in 2016, and the top three high-yield dividend consumer staples mutual funds to consider.
  3. Investing

    Now Is The Time To Buy Consumer Staples Stocks

    As the markets have swooned, so have many boring sectors. That includes consumer staples stocks. Still, the sector could still be a value based on historical data. Investors may not want to abandon ...
  4. Financial Advisor

    Consumer Discretionary Vs. Consumer Staples in 2016

    Learn why understanding the seasonal tendencies of consumer discretionary and consumer staple sectors will help improve investors' portfolio performance.
  5. Insights

    5 Consumer Staple Stocks Vulnerable To a Sell Off (GIS, CAG)

    Thinking about investing for dividend yield? Here is a consumer staples stock list of companies that could potentially sell off.
  6. Investing

    Staples Is Closing Stores After Q4 Drop in Sales

    At this time last year, Staples (NASDAQ: SPLS) was banking on a merger with Office Depot (NASDAQ: ODP) to right its ship. By June, of course, the deal was dead -- sunk by antitrust concerns. ...
  7. Insights

    Staples Pivots from Office Supplies to Office Space

    Staples wants to overhaul its image with trendy $130-per-month work space offerings, complete with coffee and happy hours.
  8. Investing

    A Look at the Consumer Staples Select Sector SPDR Fund (XLP, PG)

    Components of the XLP are projected to yield an average earnings growth rate of 8.60% in the next three to five years.
  9. Investing

    Private Equity Firms Consider a Buyout of Staples

    Ever since its deal to acquire rival Office Depot (NASDAQ: ODP) on was blocked by a federal judge on anti-competitiveness grounds, Staples (NASDAQ: SPLS) has struggled to find a new plan forward. ...
  10. Investing

    Smoke If You Got 'Em: Tobacco Could Light Up Staples ETFs

    An earnings deluge is coming from the tobacco industry and that could move consumer staples ETFs.
  1. Which economic factors most affect the demand for consumer goods?

    Understand how key economic factors such as inflation, unemployment, interest rates and consumer confidence affect the level ... Read Answer >>
  2. What are some limitations of the consumer price index (CPI)?

    Despite being followed so relentlessly, the consumer price index has its limitations and is an imperfect a measure of inflation ... Read Answer >>
  3. How are industrial goods different from consumer goods?

    Understand the difference between industrial goods and consumer goods, and learn the different types of industrial goods ... Read Answer >>
  4. What's the best investing strategy to have during a recession?

    During a recession, investors need to act cautiously but remain vigilant in monitoring the market landscape for opportunities. Read Answer >>
  5. What's the difference between a commodity and a product?

    Understand the difference between commodities and products, and learn how they are connected to each other and to market ... Read Answer >>
  6. Profit margin for food and beverage sector

    Learn which profit margin is common for a company in the food and beverage sector based on different statistical measures ... Read Answer >>
Trading Center