Becoming a millionaire isn’t something that normally happens overnight. Sure, you could risk it all on one 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 the latter approach is the one you are taking, consider adding consumer staples giants, like Procter & Gamble(NYSE: PG) and Coca-Cola(NYSE: KO), to your collection of stocks. Here’s why.
The consumer staples sector is filled with companies that provide consumers with the mundane things they use every day. Think about things like food, beverages, and personal care items. Deodorant and toilet paper are hardly exciting and innovative product categories at this point, but you buy these mature products all the time. In fact, you probably couldn’t imagine your life without these products.
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For anyone that needs a reminder of how important consumer staples products are, think back to the early days of the coronavirus pandemic when people were hoarding toilet paper and it was hard to find many products on grocery store shelves.
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It doesn’t matter if the economy is growing strongly or mired in a recession; people always buy the consumer products they need to live comfortable lives. This is why every diversified portfolio should have at least some exposure to this sector. It provides a foundation on top of which you can own riskier, more growth-oriented stocks.
That said, the foundation is only as strong as the consumer staples companies you pick. This is why most investors looking to build up to millionaire status will want to select the best-run 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 far more diversified, operating in the health and beauty (like toothpaste and face cream), baby care (diapers), and paper goods (toilet paper and paper towels) segments of the broader consumer products industry. The differentiating factor for P&G is that it tends to operate at the high end of the market, providing products that provide discernible benefits to justify their higher costs.
One of P&G’s biggest strengths is its research and development prowess. The company isn’t looking to take share from competitors as much as it is attempting 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’s stock is currently trading hands at a price-to-earnings ratio of around 30 times, which is roughly in line with its five-year average. It wouldn’t be fair to suggest 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, led, of course, by its namesake Coke business. Although innovation is a part of the story, the real strength of Coca-Cola is 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 has built in support of its namesake soda can be used to support other brands, too.
Clearly, Coca-Cola has a strong collection of brands today. But there are always fresh new beverages popping up. Coca-Cola’s size allows it to act as an industry consolidator, taking smaller brands and leveraging its distribution and marketing prowess to ramp up their growth. The company has done this over and over again, with once-hot sectors like sports drinks and energy drinks as prime examples.
Strong execution is how Coca-Cola has remained a top beverage competitor for so long and why you will likely want to own it as a foundational holding.
And, like P&G, Coca-Cola’s P/E ratio is roughly in line with its five-year average. Once again, that is likely to be a fair price for a great company in a market that is racing to new highs.
So both P&G and Coke are well-run industry leaders trading for what appear to be reasonable prices given the current market rally. But there’s one more bit of proof that should interest investors about the value these two companies offer — both are Dividend Kings with more than six decades worth of annual dividend increases behind each of them. You can’t build a record like that without a good business. Also, their respective dividend yields, P&G at 2.2% and Coke at 3%, are notably higher than what you’ll get from the S&P 500 index (SNPINDEX: ^GSPC) (roughly 1.2%).
P&G and Coke won’t make you an overnight millionaire. But they are the types of reliable stocks that build wealth over time and allow you to be more aggressive in other parts of your portfolio. If you are looking at the market and worried that it is getting expensive, these two consumer staples giants could be the right choice for you.
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Reuben Gregg Brewer has positions in Procter & Gamble. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
