NEW YORK (TheStreet) -- Want a stock that will help you weather the storm during bad times and ride the rising tides during good? Look no further than these three recession-resistant consumer goods stocks.
From January 2008 through February 2009 the S&P 500 fell over 49%. Investors view utilities as safe haven stocks during recessions. The Utilities Select ETF (XLU) - Get Report fell 39% over the same time period. At the same time, the Consumers Staples Select ETF (XLP) - Get Report fell just over 30%. The critical point: The consumer staples sector outperformed the S&P 500 by 19 points and utilities by 10 points in 13 months.
And when times are good, consumer staples stocks perform nearly as well as the S&P 500, basically matching its performance over the last five years. The S&P 500 is up 88% while the consumer staples sector is up 87% over that time.
Bring it all together, consumer staples stocks tend to have smaller losses during recessions while still matching overall stock market gains during bull markets.
The three consumer staples stocks below all have long dividend histories that prove they are shareholder friendly. Each stock is a member of the Consumer Staples Select ETF. Further, each of the three stocks below outperformed the Consumer Staples Select ETF from January 2008 through February 2009, during the height of the great recession.
General Mills is one of the most consistent businesses to invest in. The company has not reduced its dividend payments in 116 years. General Mills markets its food products under well-known consumer brands: Cheerios, Yoplait, Haagen-Dazs, Progresso, Betty Crocker, and Valley Fresh, among many others.
From January 2008 through February 2009, General Mills fell only 5% while the S&P 500 fell 49% and the consumer staples sector fell 30%. We tend to tighten our budgets during recessions. This includes eating out less and cooking more food at home. General Mills benefits when people decide to eat at home more often. More dining at home is what insulates General Mills from the effects of recessions.
General Mills ranks highly using The 8 Rules of Dividend Investing because of its stability, high dividend yield of 3.1%, and 6.4% revenue per share growth rate over the last 10 years. The stock currently trades at a price-to-earnings ratio of 19.4 which is about the same as the S&P 500's price-to-earnings ratio.
Wal-Mart is the largest retailer in the world. The company has raised its dividend payments each year for 41 consecutive years. Due to the company's long dividend streak, Wal-Mart is a Dividend Aristocrat. The company controls over 1.1 billion total square feet of retail space and has generated over $480 billion in sales in the last 12 months alone.
Wal-Mart performed very well from January 2008 through February 2009. While the S&P 500 fell 49% and the consumer staples sector fell 30%, Wal-Mart stock gained 4%. Wal-Mart is known around the world for low prices. When the economy falters, people tend to look for better deals. Consumers switch over to shopping at Wal-Mart during recessions to cut their costs. This is why Wal-Mart does so well during recessions.
Wal-Mart currently has a price-to-earnings ratio of 18 and a dividend yield of 2.2%. The company's long dividend history shows how stable the company is. Wal-Mart possesses a strong competitive advantage from its more-than 10,000 global locations, strong brand name, and economies of scale. The company has grown revenue per share at 7.3% a year over the last decade.
Colgate-Palmolive is one of the largest manufacturers of personal products in the world. The company sells products and pet food under the following well known brands: Colgate, Palmolive, SpeedStick, SoftSoap, Ajax, Hill's Pet Nutrition, and Science Diet. The company is truly dominant in the toothpaste market where it controls 44% of global market share. Colgate-Palmolive has increased its dividend payments for over 50 consecutive years.
Colgate-Palmolive's strong consumer brands serve it well during recessions. The company's stock price fell 24% from January of 2008 through February of 2009. Remember, the S&P 500 was down 49% and the consumer goods sector was down 30% over the same time period. Colgate-Palmolive sells branded products consumers find difficult to cut back on. One does not stop brushing their teeth or using soap to wash their hands during recessions, for example.
Unlike Wal-Mart and General Mills, Colgate-Palmolive's stock looks overpriced at this time. The company currently has a price-to-earnings ratio of 29.3, well above the S&P 500's price-to-earnings ratio of 19.4. Colgate-Palmolive has a dividend yield of 2.1%. The company is very stable as evidenced by its strong brands and long history of dividend increases. Colgate-Palmolive makes sense to hold at this time. The company is of the highest quality, but investors looking to start a position should likely wait for a better price.
This article is commentary by an independent contributor. At the time of publication, the author held WMT.