As economic tides turn, households tighten up their wallets and cut spending wherever possible. This means keeping a close eye on all “nice to have” expenses like entertainment, new tech, and even vehicle upgrades. However, the demand for consumer staples like hygiene products, clothing, and food doesn’t change. One thing that does change for these core goods, though, is competition. Price-conscious consumers will go with the budget-friendly item over something name-brand, and, if they can get all their needed goods from a single source, all the better. This has led to the rise of defensive stocks to buy.
This makes consumer staple stocks, particularly those with wide and diverse offerings, ideal defensive stocks during economic turbulence. While consumer staples stocks might not see the same rapid growth as tech or other hot stocks, they often offer predictable, long-term performance.
Better yet, many defensive companies are among the best dividend stocks for income and value investors. Many combine proven performance with attractive yields and long-term dividend history. The market’s rapid up-and-downs this month have you feeling queasy. If so, protecting your portfolio with some defensive stocks might be the medicine you need.
Walmart (WMT)
Walmart (NYSE:WMT) is a consistent, steady performer. The stock enjoyed modest growth this year and climbed around 11% since January. Sentiment, likewise, is positive around the company’s prospects. Going into August 17th’s earnings report, analyst consensus is a resounding buy as experts peg today’s stock price about 10% below fair value.
The company’s robust cash flow stands out, which sets it apart from key competitors. Peer companies like Target (NYSE:TGT) face greater inventory management issues than Walmart, which eats into cash flow as stale inventory stacks up. Just compare Walmart’s 8.20 inventory turnover ratio with Target’s 6.0 ratio, and it’s clear which has a better handle on merchandise management.
Investors are drawn to Walmart’s reliability and value, reflected in its 1.6% dividend yield. Notably, the company enjoys dividend king status and consistently raised dividends for more than 50 years. This history of dividend growth underscores Walmart’s commitment to providing returns to its shareholders. At the same time, the firm is investing earnings into the business alongside returning value to shareholders. Those internal investments are paying off. A major consumer research firm recently reported that Walmart’s grocery sector captured more than 25% of the national market share.
Costco (COST)
Costco (NASDAQ:COST) is one of the few companies that maintained mid-pandemic momentum, growing almost 24% since January and a whopping 150% over the past five years. Consumers may have moved away from stocking up on toilet paper and towards managing grocery budgets more tightly, but one player remains Costco.
Costco blew up during the pandemic, but growth hasn’t slowed.
The shift in consumer behavior is evident as shoppers have reduced spending on non-essential items while maintaining consistent purchases of essential products at Costco. Notably, the company’s exceptional growth during the initial two years of the pandemic creates a challenging baseline for ongoing expansion.
Additionally, Costco still has room to expand and untapped growth potential globally. Membership grew 7% over 2022 amid the worst of the year’s economic turbulence. Management also shows they’re sensitive to consumer and customer needs, which increases brand loyalty. Activist investors have clamored for membership price hikes. Despite their efforts, the Chief Financial Officer pointed to inflation and household concerns as reasons to stabilize pricing. In a recent investor call, he said, “Our view right now is that we’ve got enough leverage out there to drive business. We feel that it’s incumbent upon us to be that beacon of light to our members in terms of holding them for right now.”
Growth despite uncertainty and baked-in brand loyalty make Costco a consumer mainstay. It’s also a perfect defensive pick for protecting your portfolio.
Procter & Gamble (PG)
Procter & Gamble (NYSE:PG) may have traded flat this year, but that may mean the consumer staple stock is undervalued. Analysts agree, with a string buy consensus and research firm EquitySet pegging the current price at below 20% fair value.
PG’s market resilience comes from a diversified product portfolio. Its primary offerings include well-known consumer staples like diapers, paper towels, and shampoo. These diverse and fundamental offerings insulate the company from a challenging economy’s impacts as consumers still need the basics, even on a budget.
PG is also the best performer dividend-wise of these three defensive stocks, yielding around 2.5%. Company management is also committed to buybacks, repurchasing enough stock to push the total yield to 4.38% with a sustainable 62% payout ratio. Furthermore, PG’s 68-year track record of dividend increases isn’t projected to end anytime soon, making it a core holding for any income-driven portfolio.
Procter & Gamble’s stock showcases a consistent and stable performance, making it a dependable defensive option for investors.
On the date of publication, Jeremy Flint held no positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
