Some of the best stocks over time have proven to come from industries that may surprise you. Whereas the financial media obsesses over the hot stocks of the day, touting the next technology start-up that promises to change the world and mint instant millionaires overnight, the reality is that for most retail investors slow-and-steady is the best way to prosperity.
To that end, stocks that have outperformed the market over time disproportionately come from industries that might be considered boring. These are companies whose products are sold year in and year out, regardless of the prevailing market environment. While none of these types of stocks offer sexy business models and aren’t likely to provide you with instant riches, what these stocks can provide are reliable returns and low volatility to help you build wealth and sleep well at night.
Don’t be scared, but these brands are inside your house
The consumer staples sector in particular is a haven for these types of companies. Stocks, including General Mills, Inc. (NYSE:GIS), ConAgra Foods, Inc. (NYSE:CAG), and The Procter & Gamble Company (NYSE:PG), sell products that can be found in virtually every home in America.
General Mills, Inc. (NYSE:GIS) offers a diversified portfolio of food products, including Cheerios, Cinnamon Toast Crunch, and Wheaties, not to mention a stable of other food items. The company grew astoundingly from very humble beginnings: its first product was Gold Medal flour, introduced all the way back in 1880.
Last year, The Procter and Gamble Company (NYSE:PG) celebrated its 175th anniversary, and has thrived for so long because of its stable of market-leading brands. P&G directs investors’ collective attention to its 50 ‘Leadership Brands,’ meaning the 50 products that comprise 90% of the company’s revenues and more than 90% of its profits. 25 of these brands are billion-dollar brands, each generating at least $1 billion in annual sales. Its flagship brands can be found in virtually every aisle in the local grocery store. These include Gillette razors, Pampers diapers, Bounty paper towels, Tide laundry detergent, Crest toothpaste, and Head and Shoulders shampoo.
ConAgra Foods, Inc. (NYSE:CAG) has a market value of $14 billion and creates many household brands, including Healthy Choice, Hebrew National, and Del Monte. ConAgra Foods, Inc. (NYSE:CAG)’ consumer brands can be found in 97% of America’s households, and 28 of them are ranked first or second in their category.
Big dividends, and the financial strength to back them up
In early March, General Mills, Inc. (NYSE:GIS) raised its dividend 15% to its current level of $1.52 per share annualized. The company has paid uninterrupted dividends for an astounding 114 years in a row. General Mills, Inc. (NYSE:GIS) has executed admirably to start fiscal 2013, growing sales by 6% during the first three quarters of the year. Furthermore, the company’s adjusted diluted earnings per share rose 10% versus the first nine months of fiscal 2012.
General Mills, Inc. (NYSE:GIS) has been a multi-year market outperformer, generating five-year total returns of 14% compounded annually, versus 6% for the broader S&P 500 Index. The company is modestly valued, with a trailing price-to-earnings ratio of 18 and a dividend yield of 3.2%.
It can’t be overstated that Procter and Gamble is the gold standard for dividend-paying stocks. In fiscal 2012 P&G returned $10 billion to shareholders through dividends and buybacks. In fiscal 2012, the company paid a dividend for the 122nd year in a row. That kind of track record places Procter and Gamble in elite company. Only eight other U.S.-based companies have paid dividends to shareholders for as long as Procter and Gamble has. In addition, P&G increased its dividend for the 56th year in a row.
ConAgra Foods, Inc. (NYSE:CAG) increased net sales by 8% in fiscal 2012, and rewarded its shareholders by raising the dividend by 4% last year. The stock yields 3% at recent prices, and trades at a forward P/E of 14. In addition, ConAgra Foods, Inc. (NYSE:CAG) has shored up its cash position recently, more than quadrupling the amount of cash on its balance sheet between November and May of 2012.
A thought experiment
The next time you’re at the grocery store, take a minute as you wait in the check-out lane to notice the items you’ve assembled in your cart. You’ll probably realize that you’ve been purchasing the same items for years on end, and many of those items likely come from one (or more) of the stocks presented here. Since you’re rewarding each of these companies with your business, why not own their shares and reward yourself as well?
These stocks probably aren’t going to produce Earth-shattering growth rates any time soon. After all, cereal, toothpaste, and frozen dinners aren’t exactly the next great growth engines of our time. However, these stocks do provide reliability and consistency. None of these companies will go out of business, even if the economy experiences difficulties. Recessions come and go, as an inevitable result of our cyclical economy. You can be certain that there will be another downturn–it’s just a matter of when.
Withstanding recessions is a lot easier when you have the peace of mind knowing your stocks are still going to pump out increasing dividends year in and year out. These companies are financially secure and have plenty of opportunities ahead of them, particularly in the emerging markets. Add it all up, and these stocks are a great foundation to a portfolio that will stand the test of time.
The article The Grocery Cart Portfolio originally appeared on Fool.com and is written by Robert Ciura.
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