“Consumer Staples has a higher dividend yield than the S&P 500, and the sector’s stocks have historically been less volatile, as measured by beta and standard deviation. We think return of cash to shareholders, in the form of dividends and stock repurchases, will provide appeal for some Consumer Staples stocks. However, if the prospects for overall economic activity are looking better, investors may prefer more cyclical sectors with stronger expected growth,” said S&P Capital IQ in the note.

XLP and VDC, both rated overweight by S&P Capitl IQ, have an average yield of 2.5%, slightly lower than the current yield on 10-year Treasuries. However, both ETFs feature significant allocations to chronic dividend raisers like Coca-Cola, P&G, PepsiCo (NYSE: PEP) and Colgate-Palmolive (NYSE: CL). Those stocks combine for 31.4% of XLP’s weight.

“Year to date through October 9, on a price-only basis, Consumer Staples stocks in the S&P 500 were up

13.3%, lagging the 16.1% rise for the broader index. When dividends are included in the calculation, the

Consumer Staples sector had a total return of 15.8%, versus 18.1% for the S&P 500,” said S&P.

Over the past three years, XLP and VDC are up 56.3% and 58.8%, respectively, compared to 54.5% for the SPDR S&P 500 (NYSEArca: SPY). The two staples ETFs have been about 470 basis points less volatile than SPY over that time.

Consumer Staples Select Sector SPDR


ETF Trends editorial team contributed to this post. Tom Lydon’s clients own shares of SPY, Coca-Cola and P&G.