The stock market climbed steadily higher in December, supported by the approval and distribution of coronavirus vaccines as well as a stabilizing political situation after the election drama in November. The incoming Biden administration is open to the idea of renewed lockdowns in 2021, if that’s what it takes to bring the COVID-19 pandemic to its knees.
Consumer staples stocks often serve as safe havens in turbulent times. Their mature markets, easy-to-understand business plans, and household names can offer investors a relatively low-risk profile. It doesn’t hurt that most consumer staples stocks also come with generous dividend policies.
Big-box retailer Target ((NYSE:TGT)) and soft drink giant Coca-Cola (NYSE: KO) offer all of these advantages and more as the calendar rolls over into 2021. Here’s why you should pick up a few shares of these high-quality consumer staples stocks today.
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Target didn’t just survive the COVID-19 health crisis. The retailer actually thrives under this high-pressure environment, posting impressive business growth while also tweaking its business model in important ways.
In November’s third-quarter report, Target reported an astonishing 20.7% increase in comparable sales. The jump was supported both by more shopping trips and a larger bill for each outing. Foot traffic to Target’s stores rose 4.5% year over year while the average ticket came in 15.6% higher.
That’s just the ordinary store network. Target saw digital sales surging 155% higher, accounting for approximately half of the in-store sales boost as shoppers picked out items online for curbside pick-up.
This company is quick to adjust to changing market realities and that attitude should serve Target shareholders well for many years to come. Flexibility is the key to long-term success, especially in consumer-facing industries like Target’s broad-spectrum retail offerings.
Target shares rose 38% in 2020 and 170% over the last three years. The stock still looks cheap, trading at 21 times forward earnings or 15 times trailing free cash flows. The three-year return was boosted to 195% if you reinvested Target’s dividend yield in more shares along the way, and the dividend yield stands at a mighty decent 1.5% today. What’s not to love?
Image source: Getty Images.
It’s no secret that Coca-Cola is going through a rough time right now. The company is simplifying its massive product portfolio so it can focus on its most profitable and best-selling drink brands. Coke announced a huge layoff program in December, slashing 1,200 positions in America and a total of 2,200 jobs around the world.
As painful as these steps may be, Coca-Cola is rebuilding a bloated business model into something leaner and meaner. The cost savings should land near $450 million per year, boosting bottom-line profits by roughly 5%.
Coca-Cola is very much looking forward to a world where big crowds are going back to the restaurants and stadiums they left behind in 2020. About half of Coke’s sales used to come from out-of-home locations in a normal year, and that sales channel suffers anywhere you see a local lockdown order. The stock price reflected this pressure in 2020, falling 1% while the S&P 500 market barometer rose 16%.
That makes Coca-Cola an effective and often overlooked play on the vaccine-driven rebound from coronavirus restrictions. And you can’t ignore Coca-Cola’s bountiful dividend yield of 3%. This is the perfect time to lock down that generous yield and position yourself to take advantage of the post-COVID rebound, all with the help of a household name that many investors are forgetting these days.
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Anders Bylund has no position in any of the stocks mentioned. The Fintech Zoom has no position in any of the stocks mentioned. The Fintech Zoom has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.