Consumer Staples Have Some Value Left

There is some news around the consumer staples, which is a popular bread and butter sector for many dividend growth investors. It looks like the sector has some value, that could be unlocked by private buyers or spin-offs.

Last week, Ferrero Group announced that it will acquire WK Kellogg (KLG) for $23/share.

Back in 2023, Kellogg's split into WK Kellogg (KLG) and Kellanova (K). Kellanova itself is in the process of being acquired by Mars Inc

Today, Kraft Heinz is rumored to be planning to split off its grocery business, from its sauce and spreads business. In effect splitting into a Kraft and a Heinz. That could unlock some value, and potentially get someone else to bid up for those separate companies.

Looks like there is some value left in consumer staple brands after all. Perhaps those deals are a sign that public market valuations are lower than what the intrinsic values to a private buyer would be.

For those who like to play the relative performance game, the consumer staples sector (XLP) has lagged the averages in the past 15 years.

Of course, it really did much better in the lost decade of the 2000s and then some.

Those companies have managed to weather many storms, and succeed in a slow and steady fashion.

It's fascinating to look under the hood on the staples etf. 

The two largest companies, Costco (COST) and Walmart (WMT),  are not what many of us would consider to be a consumer staple. 

These sector classifications are indeed something, arent' they?

There is some untapped value there I think, in the traditional consumer staples space however. These companies can weather storms well, but also deliver returns when things are good too. 

There are some risks to some companies in the sector, though these companies have also been known to manage a ton of risks and obstacles over the decades, and overcome them. 

These strong brands have some pricing power left too, along with some loyal customer following. Yes, consumers are squeezed, and yes there is always the risk of generics and probably other risks as well     ( Ozempic for some). But these companies have also managed to overcome those risks in the past, so perhaps they'd pull another trick from up their sleeves.

There's probably a reason why there are so many consumer staples in the list of the best performing companies over the past half a century or so..

Even an average return can compound to a lot of wealth if left uninterrupted for a long time..

That being said, one should always use the type of logical evaluation of each company, before investing in my opinion. On my end this means requiring a long history of dividend increases, that is supported by growth in earnings per share. I also want an adequate dividend payout ratio as well as a good valuation.  This provides some margin of safety for the diversified dividend growth investor.