Leading consumer staples companies don’t grow like some tech companies do. Nevertheless I think some leading consumer staple stocks such as Procter & Gamble (NYSE: PG) and Unilever (LSE: ULVR) can be good investments. In fact, I think both stocks could double over the next 10 years given the two companies’ qualities and potential.
Procter & Gamble
Over the past 10 fiscal years, Procter & Gamble’s dividend has increased substantially, rising from $1.80 per share in fiscal year 2010 to $3.03 per share in fiscal year 2020. Management has also returned a lot of capital back to shareholders, with the company returning around $135bn of value to shareholders over the past decade through a combination of dividend payments and share repurchases and exchanges. In the second quarter of fiscal 2021, the company returned $5bn in capital alone, with $2bn in the form of dividends and $3bn in terms of stock repurchases.
Over the past 10 years, Procter & Gamble stock has more than doubled due to a combination of dividend increases, capital returns, and the company’s overall strength as a result. If inflation remains about the same, I believe the stock could approximately double again. If inflation is higher than expected, I think Procter & Gamble could do even better given the company’s pricing power. With the expected price increases of existing products, overall market growth due to rising incomes, and potential productivity increases due to improving technology, I believe Procter & Gamble will continue its strong fundamental performance into the future.
With that said, there are still challenges. Unemployment is high in many places in the world and the pandemic remains ongoing. The long-term shift of commerce to digital could bring a new set of competition and management will need to continue to execute for its stock to do well.
Like Procter & Gamble, Unilever shares have also more than doubled over the last 10 years as the company has continued to grow its customer base and build its portfolio of leading brands. As of 2021, Unilever certainly has a lot of both, with 2.5bn customers spread across 191 countries and a portfolio of 13 brands that do more than €1bn in sales each year.
Unilever also does well in countries that could grow substantially in the future. The company has the number one market position (among fast growing consumer goods companies) in India for example, and it also has a €3bn a year business in China. As those giant economies continue to develop, I think Unilever’s business in those countries and developing markets in general will likely continue to grow. If Unilever’s business grows, I think its stock price could benefit. Given the company’s potential, I think the stock could double again over the next 10 years.
Like Procter & Gamble, the long-term shift of commerce to digital could bring new competition to Unilever and management will need to continue to deliver the results that the market expects in order for the stock to do well. If margins or demand is weaker than expected, Unilever shares could have potential downside.