After the financial crisis, when people started to dip their toes back into equities, they tried to do so in the (perceived) least risky way possible–by buying high quality dividend paying stocks. As a result, from late 2011 through early 2013 blue chip consumer staples companies sold for significant premiums to the rest of the market.
At the end of 2011, the Consumer Staples stocks highlighted below sold for an average of 18x earnings compared to the S&P’s 13x. That seemed extremely expensive at the time. Today though Staples don’t look nearly as expensive as they did before (on a relative basis) because the S&P 500 multiple has expanded as the Staples’ multiples have stayed flat. It’s amazing to see how that worked.
Investors who were piling into these companies in 2011-13 did OK, but underperformed the market. The average return of the companies below since 2012 was 34.2% including dividends. The S&P 500 returned 62.8% over the same time frame.
One could argue that the Staples stocks were just early to the “low interest rates forever” trade. Their appeal was that they had steady cash flows and paid a dividend that looked juicy compared to fixed income. The fact that their multiples topped out here could be a sign that the S&P’s multiple may not expand much further either.
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