Ordinary Events, Extraordinary Returns

This article was written with Oliver Pursche, the Co-Portfolio Manager of the GMG Defensive Beta Fund. It was part of a series of articles developed under an agreement with thestreet.com to work with a variety of contributors and assist them in delivering actionable investment ideas each week.

Life can be a humdrum affair.

If you are lucky enough to live in an industrialized economy, you eat three times a day, which is fun, but then there’s that stuff we all have to do that seems like an endless drag: washing dishes, folding laundry, shaving, cleaning, cooking, errands, and on and on until I want to…

Anyway, what keeps me from doing what I want to do when everyday life gets me down is remember this “everydayness” drives a vast segment of our economy that is, for the most part, impervious to the spasms that shake it in seven-year cycles that appear almost Biblical in their regularity.

I’m referring, of course, to companies that make up the S&P Consumer Staples Index. The ETFs that mimic the index, such as the Consumer Staples Select Sector SPDR ETF (XLV), have turned in a rather spectacular 14.6% year to date performance. Over the past year it’s returned 20.3%. This compares very favorably to the broad SPDR S&P 500 (SPY) ETF performance of 10.6% year to date and 13.8% over the past year.

You might be tempted to think you missed the boat on the run in consumer staples stocks, but I don’t. In fact, in our Dividend Buster’s portfolio, for which I select the investments along with others at my firm, fully 25% of the names are in the consumer staples sector.

Here’s the four consumer staples companies from this portfolio you might want to look at more closely. They’ve all been growing their sales, earnings and dividends: McDonald’s (MCD), TJX Companies (TJX), Darden Restaurants (DRI) and General Mills (GIS).

There’s another tailwind at work as well in this portfolio: All of these companies have share buybacks in place as well.

No matter which set of mathematics you look at — demand, growth in dividends, growth in earnings, the supply of shares — the numbers for these companies are compelling, even if the things they help us do everyday are not.

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