It’s been a tough year for ASX dividend investors so far in 2020. Former income heavyweights like Transurban Group (ASX: TCL) and National Australia Bank Ltd (ASX: NAB) have substantially slashed their payouts.
Other popular dividend shares like Westpac Banking Corp (ASX: WBC), Scentre Group (ASX: SCG) and Australia and New Zealand Banking GrpLtd (ASX: ANZ) have ‘deferred’ or cancelled their dividends entirely.
The coronavirus crisis has affected most sectors of the economy. This, in turn, has led to a wide range of dividend shares unable to provide income for their shareholders in 2020.
But one of the consequences of the pandemic for this writer has been a newfound appreciation of the consumer staples sector. So much so that I think it is a grave mistake for any ASX dividend investor not to have significant exposure to it going forward.
What are consumer staples shares?
Consumer staples describe the range of products that are ‘staples’ of modern living. In other words, the kinds of goods and services we simply can’t live without. Food and drinks are the first things that come to mind. But consumer staples also include household essentials like dishwashing liquid, toothpaste, razors, laundry detergent and toilet paper (you can probably gather where I’m going with this).
I think we can all agree that one of the most striking and confronting moments of the coronavirus pandemic was seeing the bare supermarket shelves of our local supermarkets. Seeing the value that all Australians were placing on owning enough consumer staples products highlights their importance in our lives. As Joni Mitchell once sang, “Don’t it always seem to go, you don’t know what you’ve got ’til it’s gone”. I reckon we all felt that way when seeing those bare shelves.
Casting aside the unsavoury social aspects of panic buying, I think the pandemic has proved that dividend investors should ignore consumer staples shares for their income portfolios at their peril.
Choosing dividend shares in a post-COVID world
So it’s one thing saying ‘we should invest in the necessities of life’ and another thing finding good companies with which to do so. You can always start with the giants of the Australian grocery scene, Woolworths Group Ltd (ASX: WOW) and Coles Group Ltd (ASX: COL). With trailing dividend yields of 2.57% and 2.2% respectively, these companies are nothing to write home about on current pricing. But a 2.2% yield is a lot better than what Westpac is offering right now.
You could also consider Metcash Limited (ASX: MTS) – the owner of the IGA chain of ‘independent grocers’. Metcash may not be as dominant as Coles or Woolies. But it does offer a higher trailing dividend yield of 4.24% in compensation.
Another option to consider is the iShares Global Consumer Staples ETF (ASX: IXI). This exchange-traded fund (EFT) holds a basket of consumer staples shares from around the world. Its holdings include Procter & Gamble (owner of the Gillette and Oral-B brands), Nestle, Coca-Cola, PepsiCo, Colgate-Palmolive and Walmart.
Foolish takeaway
Consumer staples companies may not offer the best dividend yields on the market. But in this uncertain world, I think any dividend investor out there ignores these ‘essential’ companies at their own detriment. As such, I think all dividend investors should consider their own allocation to consumer staples shares today.
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Motley Fool contributor Sebastian Bowen owns shares of National Australia Bank Limited and PepsiCo. The Motley Fool Australia owns shares of COLESGROUP DEF SET, iShares Global Consumer Staples ETF, Transurban Group, and Woolworths Limited. The Motley Fool Australia has recommended Scentre Group. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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