Consumer Staples Stocks Offer Steady Growth and Solid Dividends

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The consumer staples sector companies produce products that consumers have to buy regardless of the state of the economy. These products include items like food, personal products, hygiene products, household goods, etc.

Consumer staple companies offer stable dividends with steady growth. They do not grow quickly like tech companies for example. Instead year after year they grow slowly and reward long-term shareholders. Some of the firms have exposure to overseas markets as well which gives them earnings diversification. Adding these stocks to a diversified portfolio offers a “cushion effect” to the portfolio during adverse market conditions.For example, P&G has increased dividends for many years in a row. Colgate-Palmolive has strong presence in overseas markets.

Five consumer staples are listed below:

1.Company: General Mills Inc (GIS)
Current Dividend Yield: 3.16%
Sector: Food Processing

2.Company: ConAgra Foods Inc (CAG)
Current Dividend Yield: 3.09%
Sector: Food Processing

3.Company: Colgate-Palmolive Co (CL)
Current Dividend Yield: 2.25%
Sector: Personal & Household Products

4.Company: Procter & Gamble Co (PG)
Current Dividend Yield: 3.07%
Sector: Personal & Household Products

5.Company: Kimberly-Clark Corp (KMB)
Current Dividend Yield: 3.43%
Sector: Personal & Household Products

Note: Dividend yields noted are as of Jan 25, 2013

Disclosure: No Positions

Ecopetrol Tops Petrobras in Market Capitalization

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While most investors have been focused on the fall in Apple’s (AAPL) market capitalization in the past few weeks, another interesting development related to market caps took place today in the world of foreign oil companies. Ecopetrol (EC) of Colombia overtook Brazil’s oil major Petrobras(PBR) in terms of market capitalization despite Petrobras producing three times as much oil and gas, according to a post in FT beyondbrics blog.

The five year performance comparison of the Ecopetrol and Petrobras ADRs is shown below:

Click to enlarge

EC-vs-PBR-5-years

Source: Yahoo Finance

Based on the today’s closing prices in New York, Ecopetrol’s market cap is over $129.1 billion compared to Petrobras’ $127.25 billion.

Ecopetrol’s ADR started trading on the NYSE in September, 2008 and has risen almost consistently ever since. Petrobras’ ADR, on the other hand, was listed on the NYSE in August 2000 and the stock has had 2 for 1 splits in 2007 and 2008. However in the past few years Petrobras’ stock has been performed poorly due to investors’ dissatisfaction with some of the political interference in the company. It will be interesting to watch if Ecopetrol is able to continue the exponential growth.

Disclosure: Long PBR

Does Market Timing Work ?

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Market timing generally tend to be suitable for investing in emerging markets which an rise and fall sharply in just a few years or even months. However timing the market in developed country stocks is usually not a wise idea. However here is a chart showing the performance of S&P 5000 since 1997 that may challenge this belief:

Click to enlarge

SP500-Returns-1997-jan-2013

 

Source: Stocks Confront Painful Past, The Wall Street Journal

Here are a few fascinating facts about the US benchmark indices based on Friday’s closing prices:

  • For the first time since 2007 the S&P 500 closed above 1,500 at 1,502.96.
  • The index has more than doubled from multi-year low in March 2009.
  • The index reached its all-time high of 1,565.15 in October 2007.

Source:  S&P 500 Post Longest Winning Streak Since 2004 on Profits, Bloomberg

Here is a 10-year chart comparing the returns of S&P 500, Dow Jones and NASDAQ:

SP-DowJones-Nasdaq-10-year-Chart

Source: Google Finance

Related ETFs:

  • SPDR S&P 500 ETF (SPY)
  • PowerShares QQQ Trust (QQQQ)

Disclosure: No Positions

Will European Banks Continue to Rally This Year?

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In an article on European banks last month I suggested that it was not clear if rising stock prices of financials was an indicator of a bull market for the overall equity market. This post is an update to that discussion.

According to a recent article in Bloomberg BusinessWeek, European banks have borrowed only a quarter of the $6.6 Trillion allocated in state rescue aid by the European Commission. UK, Germany and Ireland received the bulk of the funds.

Click to enlarge

Europe-Bank-Rescue

Source: Europe’s Bank Rescue Tally, Bloomberg BusinessWeek

From a  news report in the weekend Journal:

Hundreds of European banks are rushing to repay cheap loans they borrowed from the European Central Bank a year ago, in a show of confidence that financial markets are returning to health three years into the region’s debt crisis.

The ECB will get back €137 billion ($182.2 billion) from 278 banks on Jan. 30, the first day that the three-year loans can be repaid—and nearly two years before they are due—the European Central Bank said Friday.

That represents more than one-quarter of the €489 billion that banks tapped from the ECB in December 2011. Banks borrowed an additional €530 billion in a second installment of three-year loans last February, bringing the total to more than €1 trillion.

The ECB didn’t provide a breakdown in loan repayment by bank or country. Roughly one third of the money that was repaid came from Spanish banks, according to a person familiar with the matter.

Flexible liquidity requirements and rising earnings seem to be the driver behind the rally in European bank stocks for the past few months. In one year European financials have increased by 20% in Euro terms as represented by the benchmark STOXX® Europe 600 Banks index. The six months return is more spectacular with gains of about 47%.

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 STOXX Europe 600 Banks index - 1 Year Chart

Source: STOXX

All the exchange-listed European bank ADRs with the exception of National Bank of Greece (NBG) are in the positive territory year-to-date with some banks up by double digit percentages. Bank of Ireland (IRE) and Credit Suisse (CS) have shot by more than 38% and 20% respectively.

The early payment of state aid and strong performance of their stocks indicate that the worst is over for European banks. They may indeed continue to rally this year although at a slower pace. If some of the banks that suspended dividend payments after the financial crisis resumed dividends then it will give an additional boost to the sector.Though unemployment and other issues continue to plague Europe,  the dooms-day predictions of the complete collapse of the Euro and the EU are not going to occur, at least for the foreseeable future. Hence investors may further bid up European financials on any new positive developments.

Disclosure: No Positions

A Quick Look at Six Fast Food Restaurant Stocks

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The fast-food industry is a multi-billion dollar industry with huge presence not just in the U.S. but in countries around the world. People tend to prefer fast-food whether the economy is in expansion or contraction mode. The largest fast-food giant McDonald’s (MCD) operates  more than 38,000 stores in 119 countries serving 69 million customers every single day.

Here is a brief overview of the industry:

The fast food industry, also known as Quick Service Restaurants (QSR), has been serving up tasty morsels for as long as people have lived in cities. The modern system of fast food franchising is believed to have started in the mid 1930’s when Howard Johnson franchised his second location to a friend as a means to expand operations during the Great Depression. And oh how it has grown! As cars became commonplace, the drive-thru concept brought explosive growth to the idea of food-on-the go. “Fast Food” was added to the Merrion-Webster dictionary in 1951 and U.S. fast food companies are now franchised in over 100 countries. In the U.S. alone there are over 200,000 restaurant locations! Revenue has grown from $6 billion in 1970 to $160 billion last year, an 8.6% annualized rate.

Fast food franchises focus on high volume, low cost and high speed product. Frequently food is preheated or precooked and served to-go, though many locations also offer seating for on-site consumption. For stands, kiosks or sit-down locations, food is standardized and shipped from central locations. Consumers enjoy being able to get a familiar meal in each location, and menus and marketing are the same in every location.

Source: Franchisehelp.com

Six of the fast-food stocks are listed below for consideration:

1.Company: Sonic Corp (SONC)
Current Dividend Yield: No Dividends paid

2.Company: McDonald’s Corp (MCD)
Current Dividend Yield: 3.29%

3.Company:Domino’s Pizza Inc (DPZ)
Current Dividend Yield: No Dividends paid

4.Company: Burger King Worldwide, Inc (BKW)
Current Dividend Yield: 0.90%

5.Company: Yum! Brands Inc (YUM)
Current Dividend Yield: 2.07%

6.Company: The Wendy’s Co (WEN)
Current Dividend Yield: 3.09%

Note: Dividend yields noted are as of Jan 25, 2013

Disclosure: No Positions

Wendy’s operates 6,594 restaurants in the U.S. and 27 countries worldwide. Yum Brands operates  37,000 units under the KFC, Pizza Hut and Taco Bell brands in more 120 countries. Of the six companies listed McDonald’s has more exposure to foreign countries and has the largest market capitalization.