Becoming a millionaire is not something that normally happens overnight. Of course, you can risk it all on one thriving stock and hope it works out, or, for a better approach, you can build a diversified portfolio of well-managed companies and build your wealth slowly over time. If you choose the latter approach, consider adding consumer goods giants such as Procter & Gamble(NYSE:PG) And Coca-cola(NYSE: KO)to your collection of stocks. This is why.
The consumer staples sector is filled with companies that provide consumers with the everyday things they use every day. Think of things like food, drinks and personal care items. Deodorant and toilet paper are hardly exciting and innovative product categories at the moment, but you buy these mature products all the time. In fact, you probably can’t imagine your life without these products.
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For anyone who needs a reminder of how important staples are to consumers, think back to the early days of the coronavirus pandemic, when people were hoarding toilet paper and it was difficult to find many products on supermarket shelves.
Image source: Getty Images.
It doesn’t matter whether the economy is growing strongly or in recession; people always buy the consumer products they need to live a comfortable life. Therefore, any diversified portfolio should have at least some exposure to this sector. It provides a foundation on which you can own riskier, more growth-oriented stocks.
That said, the foundation is only as strong as the consumer goods companies you choose. This is why most investors looking to build millionaire status want to select the best-managed companies – a list that includes Procter & Gamble, better known as P&G, and Coca-Cola, often just called Coke.
Procter & Gamble and Coca-Cola are both giants in the areas in which they compete. P&G is much more diversified, operating in the health and beauty (such as toothpaste and face cream), baby care (diapers), and paper products (toilet paper and paper towels) segments of the broader consumer products industry. The differentiator for P&G is that the company typically operates at the high end of the market and delivers products that provide observable benefits to justify their higher costs.
One of P&G’s strongest points is its research and development capabilities. The company does not so much want to take market share from the competition, but tries to expand categories through innovation. For example, the Swiffer product line and category didn’t exist until P&G created it, allowing competitors to create their own Swiffer-style products.
P&G’s stock currently trades at a price-to-earnings ratio of about 30 times, which is roughly in line with its five-year average. It wouldn’t be fair to suggest that P&G is cheap, but paying a fair price for a great company is probably a good bet when the stock market hits all-time highs.
Coca-Cola is all about owning dominant beverage brands, led, of course, by the eponymous Coca-Cola division. While innovation is part of the story, Coca-Cola’s real strength lies in its global marketing and distribution system. It takes both to keep a dominant brand dominant. But the story behind the Coke brand is that the system it built to support its namesake soft drink can also be used to support other brands.
It’s clear that Coca-Cola has a strong collection of brands today. But new, fresh drinks are always popping up. Coca-Cola’s size allows it to act as a consolidator in the industry, acquiring smaller brands and leveraging its distribution and marketing skills to accelerate their growth. The company has done this time and time again, with once-popular sectors like sports drinks and energy drinks being prime examples.
Strong execution is why Coca-Cola has remained one of the top beverage competitors for so long and why you probably want to own it as a fundamental holding.
And like P&G, Coca-Cola’s price-to-earnings ratio is roughly in line with the five-year average. Again, that’s probably a fair price for a great company in a market that’s racing to new highs.
So both P&G and Coca-Cola are well-managed industry leaders trading at what appear to be reasonable prices given the current market rally. But there’s another piece of evidence that should interest investors in the value these two companies offer: Both are Dividend Kings, with more than six decades of annual dividend increases behind each. Without a good company you cannot build such a record. Also, their respective dividend yields, P&G at 2.2% and Coca-Cola at 3%, are significantly higher than what you get from the S&P500 index (SNPINDEX: ^GSPC) (about 1.2%).
P&G and Coca-Cola won’t make you a millionaire overnight. But these are the kind of reliable stocks that build wealth over time and allow you to be more aggressive in other parts of your portfolio. If you’re looking at the market and worried it’s getting expensive, these two consumer goods giants could be the right choice for you.
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Reuben Gregg Brewer holds positions at Procter & Gamble. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
2 Consumer Staples Stocks That Can Make You a Millionaire was originally published by The Motley Fool
