It is much easier to get rich slowly than it is to get rich fast, and usually a lot less risky, too. If you want to build wealth over time, consumer staples stocks should have a prominent place in your portfolio. Two reliable dividend-paying consumer staples giants to look at today are PepsiCo (NASDAQ: PEP) and Hormel (NYSE: HRL) . Here's why you'll want to consider adding both to your millionaire-maker portfolio right now.
Building wealth isn't about taking risk -- it's about avoiding mistakes
Before looking at PepsiCo and Hormel individually, it is important to consider what is required to build a seven-figure portfolio. There is risk involved, of course, since investing is an inherently risky activity. But the more important aspect to building wealth is really the avoidance of big mistakes -- the type that permanently destroy wealth.
Image source: Getty Images.
Some things to avoid might include investing fads ( meme stocks ) or chasing ultra-high yields that eventually get cut (yield traps). It is far easier to build wealth when you buy good companies that are trading at attractive prices, and then hold on to them for a long time (decades). That way, you benefit as they grow their businesses over the years.
This is a portfolio approach, so you'll need more than one investment (perhaps a dozen to 20 stocks). But it is a far more reliable way to get to millionaire status than swinging for the fences.
Hormel and PepsiCo can help round out your portfolio by adding two highly reliable consumer staples stocks. Notably, consumer staples makers produce products that don't cost a lot of money, but get bought on a highly regular basis. In this case, both of these companies make food. You need to eat, and so does everyone else. But why these two food makers?
Pepsico is attractively priced today
Getting down to business, PepsiCo's price-to-sales and price-to-earnings ratios are both below their five-year averages today. The company's 3.1% dividend yield, meanwhile, is above its 10-year average yield of 2.8%. In other words, PepsiCo looks relatively cheap right now.
What you are getting for a discounted price is a Dividend King that has strung together 52 consecutive annual dividend increases. Only well-run companies can achieve a number like that. PepsiCo is the No. 2 player in beverages behind Coca-Cola , the number one player in salty snacks (with Frito-Lay), and has a solid portfolio of packaged food products in its Quaker Oats business. Given its size, with a market cap of $230 billion, as well as its portfolio, PepsiCo is a vital partner to retailers around the world.
To be fair, PepsiCo isn't firing on all cylinders today. But given the business makeup and long-term track record here, investors looking to build wealth the slow and steady way should probably give management the benefit of the doubt and buy while the stock is unloved.
Hormel is facing a category 4 storm
Compared to PepsiCo, Hormel's recent performance has been downright unnerving. It has four major headwinds pushing it down: Difficulty passing inflation along to con costsumers, avian flu hitting poultry flocks, a slow pandemic recovery in China, and the purchase of Planters just as the nut segment of the snack category started to slow down.
Individually, these issues would be nuisances; collectively, they are a big problem. That's why Hormel's dividend yield is near all-time highs at 3.5%.
Taking a contrarian stance here, however, makes a lot of sense. For starters, Hormel's dividend record is even more impressive than that of PepsiCo. Hormel has hiked its dividend annually for 58 consecutive years. Meanwhile, the company is known for innovation and has a strong position in the food service space, where its pre-cooked meats help save time and money.
To back that up, Planters has introduced new products that have allowed it to grow market share despite the weakness in the nut category. Food service sales, meanwhile, rose 8% in the first half of 2024, with segment profits up 6%.
Yes, Hormel comes with more warts than some investors may like. But if you can think in decades, not days, this contrarian investment has proven it knows how to execute in good times and bad. With a historically high yield, now is a great time to add this food maker to your portfolio.
You can't avoid risk, so focus on intelligent risk-taking
When you work to build generational wealth, you have to balance risk versus reward. Swinging for the fences may work out sometimes, but the risk of loss is huge, and striking out can set you back for years. A better choice is to focus on reliable stocks, like Dividend Kings PepsiCo and Hormel, that have proven they know how to muddle through tough times so that they can thrive over the long term.
The best point to buy them, meanwhile, is when they are on sale, because fickle Wall Street is focused on what are likely to be short-term negatives. It appears that time is now.
Should you invest $1,000 in PepsiCo right now?
Before you buy stock in PepsiCo, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and PepsiCo wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $760,130 !*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.
See the 10 stocks »
*Stock Advisor returns as of September 23, 2024
Reuben Gregg Brewer has positions in Hormel Foods. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .
Local News
Comments / 0