Consumer staples companies sell products that people tend to buy regardless of the economic environment, making them traditional safe-haven investments for cautious investors.
Two of the sector’s most recognizable names are currently struggling, but long-term investors may find that today’s weakness represents a compelling buying opportunity worth serious consideration.
PepsiCo (NASDAQ: PEP) is named after its famous soda brand, but beverages tell only part of the story behind this highly diversified consumer staples giant.
The company holds the No. 1 position in salty snacks through its Frito-Lay brand, and also operates a significant packaged food business anchored by the Quaker Oats portfolio.
PepsiCo is currently navigating a difficult stretch, with top-line growth cooling after an inflation-driven surge that followed the coronavirus pandemic, and Frito-Lay facing shifting snacking trends.
Despite these pressures, PepsiCo has increased its dividend for 53 consecutive years, earning it Dividend King status and demonstrating its ability to execute through both good times and bad.
The company is not waiting idly for conditions to improve, instead cutting costs, improving efficiencies, and acquiring on-trend brands like Siete, which makes Mexican-American fare, and Poppi, which makes probiotic beverages.
With a historically high dividend yield of 4.4%, investors are being compensated generously while the company works through its current challenges over the coming years.
Hershey (NYSE: HSY) is the U.S. leader in the confections space, with iconic brands including its namesake chocolate and the powerful Reese’s franchise driving its dominant market position.
The company faces a significant near-term headwind in the form of an astonishing rise in cocoa prices, which is a key input into chocolate and a volatile commodity even in stable market conditions.
Investors have sold off Hershey stock heavily in response to rising cocoa costs, and there is no quick fix given that cocoa comes from trees, which take time to grow.
What remains unchanged, however, is Hershey’s dominant industry position and its ongoing strategy of acquiring non-chocolate confection businesses and salty snack brands to diversify its revenue base.
A unique structural advantage for Hershey is that The Hershey Trust, a charitable organization, holds effective voting control of the company, allowing management to prioritize long-term thinking over short-term market pressures.
The Hershey Trust requires a reliable and growing dividend to support its philanthropic efforts, which naturally aligns the company’s financial priorities with those of income-focused individual investors.
Hershey’s dividend yield currently sits at a historically high 3.4%, well above the average consumer staples stock yield of around 2.5%, making it an attractive option for patient, income-oriented investors.
Both PepsiCo and Hershey remain giants in their respective niches despite near-term business pressures, and investors who think in decades rather than days may find both stocks worthy additions to a long-term dividend portfolio.
