Durable and defensive: A look at U.S. consumer staples ETFs

If investors can get past valuations in the consumer staples sector, there are a raft of low-cost ETF options offering access to the space.

Robert Goldsborough 15 March, 2016 | 5:00PM

U.S. consumer staples stocks performed well in 2015. In aggregate, this defensive sector returned nearly 7%, as measured by the performance of  Consumer Staples Select Sector SPDR ETF (XLP). This was meaningfully higher than the S&P 500's 1.3% return. In general, consumer staples companies tend to outperform during recessionary periods and, to a lesser extent, in late-cycle periods.

Morningstar's equity analysts believe that what drove staples firms' performance last year is the same dynamic that has fueled their valuations during the ultralow-interest-rate environment of the past few years: The sector's healthy dividends have captured the interest of income-seeking investors. Historically, consumer staples stocks have been sensitive to interest-rate hikes because most staples firms can't grow their earnings fast enough during economic expansions to offset the negative impact of rising rates. However, during this most recent expansion, rates have remained at historically low levels.

Meanwhile, staples firms have enjoyed robust cash flows stemming from U.S. growth, a slow recovery in Europe and cost-cutting measures. The upshot in 2015 was that staples firms in the United States were generally sporting dividend yields in the 2.5% to 3.0% range, even as their stock prices rose. In fact, XLP's dividend grew 9.5% in 2015.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Altria Group Inc41.06 USD2.11
Amerco Inc303.41 USD2.78
Anheuser-Busch InBev SA/NV ADR53.04 USD1.12
Coca-Cola Co45.87 USD1.37
Constellation Brands Inc A179.18 USD-0.28
Costco Wholesale Corp328.00 USD1.57
CVS Health Corp63.70 USD1.72
Nestle SA ADR114.02 USD0.86
PepsiCo Inc135.52 USD0.45
Philip Morris International Inc74.31 USD1.10
Procter & Gamble Co125.09 USD0.84
Rite Aid Corp16.05 USD7.57
ServiceMaster Global Holdings Inc36.21 USD1.06
Stamps.com Inc197.51 USD-0.56
The Kraft Heinz Co33.31 USD2.46
Unilever NV ADR53.35 USD0.49
Walgreens Boots Alliance Inc40.11 USD1.34
Walmart Inc132.01 USD1.92

About Author

Robert Goldsborough

Robert Goldsborough  Robert Goldsborough is an analyst covering equity strategies on Morningstar’s manager research team.

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