Why You Should Buy Consumer Staples Stocks

How the bare necessities might give your portfolio a boost this year.

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Sodas, macaroni and cheese, cigarettes, gum, salt, ketchup, and medicine are all things we use regardless of which direction the stock market is trending. These items are all part of the consumer staple market sector. They also can and should play a part in your portfolio in 2011.

Here are three reasons to consider consumer staples for your portfolio:

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The current economy. We still have high unemployment and a crippled economy, which makes these stable stocks a safe haven for investors. Everyone wants stability, and there is safety in staples. The best way to understand this sector is by thinking of the refrigerator rule. Open your refrigerator and take a look. These are the consumer staples. They are the things you use every day and will continue to use regardless of what happens in Europe or how the S&P 500 performs. Just because the economy is not running on all cylinders, you are not going to stop putting ketchup on your hotdog, are you?

Dividends. Staples pay dividends. The manufacturers of these consumer goods are in such good shape that they have been buying back stock and increasing their dividends. Dividends, especially rising dividends, are a great sign of a stable security.

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Inflation. Consumer staple companies are the best suited to withstand recent commodity price increases. Many of these companies have increased internal efficiencies within their organizations, and they have also reduced portions without reducing prices. While you may not know it, your cereal boxes have gotten smaller, and you are paying the same price per box. These two changes can only go so far. The real way these companies can handle inflation is by raising prices. When commodity prices increase, these companies can pass that increase on to the consumer. While consumers may complain, they will not give up their morning coffee.

So good luck and please pass me the mustard.

Kelly Campbell, Certified Financial Planner and Accredited Investment Fiduciary, is founder of Campbell Wealth Management, A Registered Investment Advisor in Fairfax, Va. Campbell is also the author of Fire Your Broker, a controversial look at the broker industry written as an empathetic response to the trials and tribulations that many investors have faced as the stock market cratered and their advisors abandoned their responsibilities to help them weather the storm.