When it comes to picking stocks to hold for the long term, say 10 years or more, it’s hard to look past the consumer staples sector. Essential products such as food, beverages and household items benefit from people being unable or unwilling to cut them out of their budgets regardless of their financial situation. Consumer staples stocks, while not the most exciting of companies, can make excellent long-term investments.
Here are two of the most popular in the FTSE 100. These companies will most likely still be rewarding shareholders in 2027.
Unilever
Unilever (LSE: ULVR) owns an impressive portfolio of around 400 brands, including some of the best known brands in the world, and globally these products are used on a daily basis by over 2bn people. The owner of Flora, Persil and Dove generates consistent revenues year after year and as a result, has been an excellent investment for long-term shareholders.
Indeed, over the last five years, Unilever has generated impressive total returns of 12.4% per year, outperforming the FTSE 100’s total return of 9.1% by a decent margin. Furthermore, shareholders have enjoyed excellent levels of dividend growth in this time, with the dividend payout increasing from €0.84 in FY2010 to €1.19 in FY2015, a healthy compound annual growth rate (CAGR) of 7.2%.
Another appeal of Unilever is the company’s emerging markets exposure. With 58% of sales now coming from emerging markets, this should be a strong revenue driver over the long term.
Bear in mind that Unilever’s attractive characteristics make it a popular stock among both fund managers and private investors and as a result, the stock often trades at quite a high multiple. Indeed, even after a 12% share price correction since October, Unilever’s forward looking P/E ratio still stands at a relatively high 21 times earnings.
So although I believe the firm is an excellent long-term investment, for those looking to start a position in the stock, I’d suggest waiting for a more attractive entry point.
Reckitt Benckiser
Similarly, Reckitt Benckiser (LSE: RB) owns a strong stable of trustworthy brands, including Dettol, Durex and Nurofen, and the consistent demand for these products, irrespective of the state of the economy, makes the company an excellent core holding in my opinion.
Reckitt Benckiser has generated outstanding shareholder returns over the long term and if you had invested £1,000 in the company on 1 January 2000, that investment would have grown to an impressive £17,210 at the end of 2015 vs just £1,560 if the funds had been invested in the FTSE 100 index.
Another appeal of Reckitt Benckiser is the stock’s low beta of 0.86. Beta is a measure of volatility and indicates whether a stock is more or less volatile than the market. A beta of greater than one indicates that the asset is more volatile than the market while a beta of less than one indicates that the investment is less volatile than the market. Reckitt Benckiser’s low beta means that the stock has ‘sleep well at night’ qualities.
Like Unilever, Reckitt Benckiser looks a little expensive at the moment, with a forward looking P/E of 22.6. While I have no doubt that Reckitt Benckiser has strong potential as a long-term core holding, I’d advise those looking to buy to wait patiently for a more appealing entry price.
