2 Consumer Staples Stocks That Could Make You a Millionaire

Becoming a millionaire usually doesn’t happen overnight. Sure, you could put everything on a hot stock and hope it works out, or, for a better approach, you could build a diversified portfolio of well-run companies and build your wealth slowly over time. If you take the latter approach, consider including consumer staples giants Procter & Gamble (PG 0.03%) And Coca Cola (KO -0.19%)to your stock collection. Here’s why.

What’s so great about consumer staples stocks?

The consumer staples sector is full of companies that provide consumers with the everyday essentials they need every day. Think about things like food, drinks and personal care items. Deodorant and toilet paper aren’t exciting and innovative product categories right now, but people buy these mature products all the time. In fact, you probably couldn’t imagine your life without these products.

Anyone who wants to be reminded of the importance of staple foods should 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 grocery store shelves.

Image source: Getty Images.

It doesn’t matter if the economy is growing strongly or in recession; People always buy the consumer goods they need for a comfortable life. For this reason, any diversified portfolio should have at least some exposure to this sector. It provides a foundation from which to own riskier, more growth-oriented stocks.

However, the fundamentals are only as strong as the consumer staples companies you choose. For this reason, most investors seeking millionaire status will want to pick the best-run companies – a list that includes Procter & Gamble, better known as P&G, and Coca-Cola, often just called Coke.

Why buy P&G and Coca-Cola?

Procter & Gamble and Coca-Cola are both giants in the areas in which they compete. P&G is far more diversified, operating in the health and beauty (such as toothpaste and face cream), baby care (diapers), and paper goods (toilet paper and paper towels) segments of the broader consumer goods industry. The differentiating factor for P&G is that the company tends to operate at the higher end of the market, offering products that offer identifiable benefits that justify their higher costs.

One of P&G’s greatest strengths is its research and development capabilities. The company isn’t so much trying to take market share from the competition as it is trying to expand categories through innovation. For example, the Swiffer product line and category didn’t exist until P&G created it, allowing competitors to make their own Swiffer-style products.

P&G stock currently trades at a price-to-earnings ratio of about 30 times, roughly in line with its five-year average. It wouldn’t be fair to say P&G is cheap, but paying a fair price for a great company is probably a good opportunity when the stock market is hitting all-time highs.

Coca-Cola’s business is all about owning dominant beverage brands, most notably, of course, the eponymous Coca-Cola company. Although innovation is part of the story, Coca-Cola’s true 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 soda can also be used to support other brands.

Obviously, Coca-Cola has a strong collection of brands today. But new drinks keep popping up. Coca-Cola’s size allows it to act as an industry consolidator, acquiring smaller brands and leveraging its sales and marketing capabilities to fuel 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 a top beverage competitor for so long and why you’ll probably want to own it as a founding stake.

And like P&G, Coca-Cola’s P/E ratio is roughly in line with its five-year average. That should also be a fair price for a great company in a market that is reaching new highs.

The proof is in the dividends

So both P&G and Coke are well-run industry leaders that are trading at seemingly reasonable prices given the current market recovery. But there’s another piece of evidence that should interest investors about the value of these two companies: Both are dividend kings, each with more than six decades of annual dividend increases. You can’t build such a record without a good business. Additionally, their respective dividend yields, P&G at 2.2% and Coca-Cola at 3%, are significantly higher than what you get from them S&P 500 index (^GSPC -0.38%) (approximately 1.2%).

P&G and Coca-Cola won’t make you a millionaire overnight. But they are reliable stocks that build wealth over time and allow you to be more aggressive in other parts of your portfolio. If you’re watching the market and worried it’s getting expensive, these two consumer staples giants could be the right choice for you.