Top 3 Consumer Staples Stocks to Generate Steady Income
These three consumer staples stocks have increasing dividends, above-average yields and should be recession proof.
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The consumer staples sector is home to some of the most well-known dividend-growth stocks in the world.
Consumer staples are also appealing stocks for risk-averse investors, as defensive industries such as food and beverage and personal care products see steady demand, even during recessions.
The following three consumer staples stocks have increased their dividends for over 10 years, have yields above the market average and should continue to raise dividends even during recessions.
1. Lancaster Colony (LANC)
Lancaster Colony LANC has been making food products since 1969, after shifting away from housewares. The move has afforded the company some meaningful growth in the past five decades with about $2 billion in annual revenue. Lancaster Colony makes various meal accessories like croutons and bread products in frozen and non-frozen categories.
Lancaster also has one of the best dividend increase streaks in the entire market, with more than six decades of consecutive increases.
Lancaster Colony posted fourth quarter and full-year earnings on August 22, 2024, and results were weaker than expected, although not by much. Adjusted earnings-per-share came to $1.34, which was four cents light of estimates. Revenue was down fractionally at $453 million, missing estimates by $9.4 million. Retail segment net sales fell 0.8% to $234 million, as volumes were flat.
Excluding product line exits, net sales would have risen by 1.4% as volumes would have risen 1.2%. Foodservice segment sales were unchanged at $218.6 million, including the unfavorable impact of deflationary pricing, while volumes rose 4.2%.
We are forecasting 5% earnings-per-share growth annually ahead, comprised of low single-digit sales and growing margins over time, with the caveat that margins are generally volatile. The company’s average revenue growth has been and should remain in the low single-digits annually.
Lancaster Colony’s competitive advantage is in its leadership position within the niche categories in which it competes. The company goes after accessory categories like bread, dressings and croutons where competition tends to be lighter. It also has strong distribution partnerships with companies like Walmart and McLane Company, a major restaurant distributor.
We are forecasting modest dividend growth annually for the next five years as Lancaster Colony continues its impressive streak of payouts to shareholders; the payout could be $4.82 per share in five years. LANC currently yields 2.0%.
2. SpartanNash (SPTN)
SpartanNash SPTN is a value-added wholesale grocery distributor and retailer. The corporation supplies 2,100 independent grocery retail locations in the United States.
The company itself also owns 147 supermarkets. SpartanNash operates under retail banners such as Family Fare, Martin’s Super Markets and D&W Fresh Market, to name a few. The company is also a distributor of grocery products to U.S. military commissaries.
SpartanNash reported second quarter 2024 results on August 15, 2024. Net sales of $2.23 billion was a 3.5% decrease from $2.31 billion in the same prior-year period. Adjusted earnings from continuing operations decreased by 9% year over year to $0.59 per share and Adjusted EBITDA declined by 2.4% to $64.5 million.
The company’s net long-term debt to adjusted EBITDA ratio declined sequentially from 2.4-times to 2.2-times during the quarter. Leadership maintained its guidance for fiscal 2024, expecting total net sales of approximately $9.60 billion, from $9.73 billion in 2023. Adjusted EPS is still expected to come in between $1.85 to $2.10 for 2024.
SpartanNash's adjusted earnings per share have demonstrated a fairly consistent track record of long-term growth. Over the last nine and five years, SPTN has increased adjusted earnings-per-share by 2.2% and 3.1% on average. Going forward, we believe the company can expect adjusted EPS to grow by 4.0% per year.
This increase in earnings will support 4.0% annual growth in the dividend over the next five years as well, which is consistent with the company’s nine and five-year average annual dividend growth rates of 6.7% and 2.5%, respectively.
The corporation aims to drive growth, increase efficiencies and reduce costs. SPTN has long-term targets set for fiscal 2025, which sees adjusted EBITDA of over $300 million and net sales of more than $10.5 billion. Initiatives to achieve these targets include increasing sales through customer acquisition and continued expansion into value-add offerings, and achieving savings from cost reductions.
SPTN has increased its dividend for 14 consecutive years and currently yields 4.1%.
3. Flowers Foods (FLO)
Flowers Foods FLO opened its first bakery in 1919 and has since become one of the largest producers of packaged bakery foods in the United States, operating 46 bakeries in 18 states. Well-known brands include Wonder Bread, Home Pride, Nature’s Own, Dave’s Killer Bread, Tastykake and Canyon Bakehouse.
The company operates in two segments: Direct Store-Delivery (DSD) and Warehouse Delivery, with about 85% of the company’s product being delivered directly to stores. Fresh breads, buns, rolls and tortillas make up about a three-fourths of the business, with sales channels for the company split between Supermarkets, Mass Merchandisers, Foodservice and Convenience Store.
On August 16, 2024, Flowers Foods announced second quarter results for the period ending July 13, 2024. For the quarter, revenue of $1.23 billion was unchanged from the prior year, but was $10 million below estimates. Adjusted earnings-per-share equaled $0.36, up from $0.33 last year and was $0.03 ahead of expectations.
Branded Retail sales increased 0.3% to $789.5 million as pricing and mix were up 0.3% while volume was flat. Other sales fell 1.2% to $435.5 million due to lower volumes that were partially offset by price and mix for non-retail sales.
Materials, supplies, labor and other production costs accounted for 50.1% of sales during the quarter, which was a 90 basis point decrease from the prior year. Flowers Foods reaffirmed its prior outlook for 2024. For the year, revenue is expected in a range of $5.091 billion to $5.172 billion. Adjusted earnings-per-share are still expected to be in a range of $1.20 to $1.30.
Flowers has been a solid producer in good times or bad, led by its iconic brands. It is in a recession-resistant industry, with nearly 99% of households buying fresh-packaged bread. The company posted earnings-per-share of $0.57, $0.63 and $0.66 during the 2008 through 2010 stretch. Moreover, the dividend increased during this time as well.
On May 23, 2024, Flower Foods increased its quarterly dividend 4.3% to $0.24 per share. FLO has increased its dividend for 22 consecutive years and the stock currently yields 4.3%.
At the time of publication, Ciura had no positions in any securities mentioned.