Owning consumer staples stocks is an absolute must in a dividend investing strategy.
Most people turn to dividend stocks for two reasons—to generate income or to put the magic of compounding to work using dividend reinvestment to amplify wealth building over time.
For both of those options, you want a stock with a dividend yield that is “above average.” By that, I mean a percentage annual yield that beats what you could get by simply parking your money in a bank savings account or CD. And you want a payout that will be reliable for a long period of time.
By definition, the consumer staples sector is made up of companies that sell everyday essential items. These are things that people will continue to buy no matter how the economy is doing. It includes food, beverages, household products, and even tobacco.
Over the long run, selling things that people buy day in and day out means dependable sales and profits which turns into a long history of reliable and usually rising dividend payments for many consumer staples companies.
The challenge within this sector is finding an above average yield. The current average yield for consumer staples companies is somewhere between 2.5-3% depending on the source. But my favorite one right now pays 4.9%.
The Largest Buyout in Consumer Goods
Last November, personal care products heavyweight Kimberly-Clark (KMB) announced it would acquire consumer health giant Kenvue Inc. (KVUE) in a $48.7 billion deal.
Most are calling this the largest merger seen in the space as it tops the $46 billion merger of H.J. Heinz and Kraft Foods back in 2015. And it beats the more recent 2024 merger of Mars and Kellanova (K) that was valued at around $36 billion.
The only deal I’ve seen that was larger was the Anheuser-Busch InBev (BUD) and SABMiller combination in 2016. That deal was a whopping $107 billion. But KMB and KVUE top the list of US-based consumer goods mergers.
The most interesting part of this merger is the timing. Leading up to the announcement, both companies were implementing strategic transformation plans that include reshaping their portfolios and cost cutting measures.
Both companies have seen improvements, but it’s the merger synergies that should really reinforce that momentum. The deal is expected to result in $2.1 billion in savings once the two companies are fully integrated. That’s a huge number even for a company expected to do $32 billion in revenue. To put that number in perspective, KMB pays out $1.6 billion in total annual dividends.
I think this merger will create a company well positioned for future growth.
Right now, the deal is being scrutinized by antitrust regulators worldwide. It has officially cleared US regulators. And the Commerce Commission of New Zealand and Australia has given its blessing as long as the company divests KVUE’s feminine hygiene business.
We’re currently waiting on China’s State Administration for Market Regulation. They moved the evaluation of the deal into a more in-depth phase 2 review after a complaint by a well-known anti-trust expert.
Europe’s antitrust regulator has set a deadline of September 29 to determine whether it will require a deeper probe. However, the deal is still expected to close by the end of the year.
KMB has paid a dividend for the past 92 years, and it has increased that payment every year for the past 54 years. I think this merger has come at the perfect time for the two companies and is setting them up for another 50 years of consistent and growing dividend payments.
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