Consumer Stocks to Buy and Hold Forever: Buying stock in great companies and holding it for the long-term is one of the best and most consistent strategies for building wealth.
Not all stocks, however, should be held onto for decades at a time. Stocks that make consumer staples are often the best category for this investment approach.
Here are three consumer stocks to buy and hold forever.
Coca-Cola
Coca-Cola (NYSE:KO) is one of the most famous consumer stocks for long-term returns. A longtime favorite of Warren Buffett, Coke has averaged an annual return of 16.4 percent since 1980. This has allowed the stock to handily outperform the S&P 500 and deliver massive gains to investors who have been willing to hold indefinitely.
Another good reason to buy and hold Coca-Cola is that it is one of the best stocks to hedge against economic downturns.
Even in Q1, when many companies were being pressured by inflation and concerns about consumer demand, Coke continued to perform well.
The company fared equally well during the downturn that followed the 2008 financial crisis. Thanks to its popularity around the world and seemingly impenetrable economic moat, Coke is essentially a recession-proof stock.
In addition to its perennial track record, Coca-Cola looks particularly attractive in light of its recent earnings report. Between higher prices and organic increases in sales, the company reported 16 percent year-over-year sales growth in Q2. While Coke has seen increases to its operating costs, the company has maintained strong profitability and continued to succeed. As cost pressures ease, Coca-Cola will likely continue to improve its performance.
Finally, Coke stands out as a great buy-and-hold stock because of its stable dividend growth. Today, the stock yields 2.7 percent, paying out $1.76 annually per share.
Over the last 10 years, that payout has grown at a compounded annual rate of 5.79 percent. 2022 also marked the 60th consecutive year in which Coca-Cola has increased its dividend.
The real power of this steady dividend increase can be seen readily in Warren Buffett’s stake in the company. Buffett’s cost basis on Coca-Cola is only $3.25. Today, Berkshire Hathaway’s stake in Coca-Cola yields more than 50 percent on that basis in dividends alone each year.
Hershey
Candy giant Hershey (NYSE:HSY) is a staple consumer stock that investors can rely on to generate good returns over the long haul. Like Coca-Cola, Hershey also tends to ride out periods of economic uncertainty well.
Even when consumer spending and confidence drop, Hershey has managed to turn in solid performance. This makes it a strong candidate as a buy-and-hold investment, as there’s little concern about macroeconomic factors throwing the company off of its trajectory.
Hershey has also been able to diversify its portfolio with a slate of brand acquisitions in recent years. Included in these acquisitions have been a group of non-candy snack brands that have served Hershey extremely well.
With more consumers working from home, snack foods have become more popular than ever. Diversifying beyond candy may also help Hershey capture health-conscious consumers who attempt to avoid sugary foods.
In 2022, Hershey has continued to demonstrate that it can perform well under difficult economic conditions. Its Q2 report detailed net sales of $2.37 billion, up 19.3 percent from the previous year.
Net income rose at a more modest rate of 5.5 percent, reflecting higher input costs that have affected nearly every business. Thanks to Hershey’s ability to raise prices without appreciably negative consumer reaction, though, it is in a very good position to counteract these pressures.
Hershey’s dividend yield is quite a bit lower than Coke’s at 1.78 percent. For the last three years, though, Hershey has raised its dividend at an annualized rate of 7.36 percent. Assuming this streak continues, investors will likely see better dividend growth from Hershey than from Coca-Cola.
Hershey may still have some headwinds to face in 2022. For example, the company recently warned that it would not be able to meet annual demand for Halloween candy this year.
Looking down the road, however, it’s clear that Hershey will not lose its economic moat due to temporary disruptions. Investors who are willing to hold for multiple decades will likely see very strong overall returns, even though there could still be rough patches in the near term.
General Mills
General Mills (NYSE:GIS) is a massive consumer staple company, boasting over 100 brands of packaged foods in its portfolio. This focus on essential foodstuffs gives General Mills a very high degree of resistance to recessions.
The company has a great deal of pricing power, allowing it to pass on some inflation-related costs to consumers. As such, it’s an excellent stock to hold under practically all market conditions.
In the most recent quarter, General Mills reported revenue growth of 8 percent and 23 percent adjusted earnings growth. Following that report, the stock reached record highs, demonstrating how well General Mills can perform at a time when many other companies are struggling.
General Mills also competes closely with Coca-Cola in terms of its dividend yield. The stock yields 2.77 percent and pays $2.16 annually. Despite this, General Mills doesn’t have the track record that Coke does in this area. The company only has a dividend increase streak of one year, and the most recent increase was just 1.34 percent.
With that said, General Mills has successfully paid a dividend every year since 1928. This means that investors can rely on it to pay a dividend every year, though it may not necessarily increase rapidly.
So, while General Mills definitely has income potential in a portfolio, investors likely won’t see the same level of dividend growth from this stock that they will from Coca-Cola or Hershey.
A final argument in favor of General Mills is its free cash flow. Even after reductions caused by inflation and the pandemic, General Mills still reported $2.75 billion in free cash flow in Q2. This gives the company a great deal of room to weather economic headwinds or to reward investors through dividends and share buybacks.
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