Add a Margin of Safety With 2 Consumer Staples Stocks

Two TSX consumer staples stocks can add stability, if not a margin of safety, to your investment portfolio during a recession.

| More on:
edit Safety First illustration

Image source: Getty Images

The term margin of safety refers to the concept that value investors use to assess a prospect. Warren Buffett, the GOAT of investing, buys stocks when the price is below the intrinsic or actual value. There is cushion or protection against significant losses when you apply this principle.

Some investors will buy consumer staple stocks to add a margin of safety. North West Company (TSX:NWC) and Maple Leaf Foods (TSX:MFI) aren’t immune from economic downturns but demand for their products will always be steady. Their dividend payments can also compensate for declines in share prices.

Captured markets

North West is a trusted community store in northern Canada, Western Canada, rural Alaska, South Pacific, and the Caribbean. This $1.76 billion retailer provides essential everyday products and services to customers in remote or hard-to-reach locations. The emphasis is on food, although its allied services include logistics, post office, air cargo, and commercial business sales, among others.

Performance-wise, the stock has performed well amid the challenging environment. As of this writing, the share price is $36.87 (+3.67% year to date), and the dividend yield is 4.17%. Management promises to deliver sustainable, superior total returns. Moreover, NWC firmly commits to downside risk management, disciplined capital allocation, cash flow optimization, and dividend growth.

In the nine months that ended October 31, 2021, net earnings declined 25.5% year over year to $90.7 million. Despite lower earnings, NWC’s top priority is to remain in stock on essential food and general merchandise items. The position is healthy, notwithstanding inflationary cost pressures and global supply chain disruptions.

According to management, NWC is on track to completing its multi-year rollout of next-generation merchandise and store systems. Enhancing its logistics capability by optimizing the air cargo business is also ongoing. More importantly, the medium- and longer-term outlook beyond the duration of the current environment is favourable.

The anticipated impact of government transfer payments, higher infrastructure spending in Indigenous communities, and the resiliency nature of the business are positive factors in 2023.

Compelling growth opportunities

Maple Leaf aims to transform Canada’s food industry by making delicious and nutritious food. It takes pride in being the country’s largest producer of prepared meats & poultry and “raised without antibiotics” poultry. This $3.24 billion consumer protein company derives revenues from two core business groups: Meat Protein and Plant Protein.

The company incurred a net loss of $270.4 million after three quarters in 2022 compared to the net income of $100.9 million a year ago. But Maple Leaf’s chief executive officer Michael H. McCain said, “We are at an important inflection point in our business, grounded in exceptional underlying strength and opportunity, even though this is not immediately obvious in current performance or reflected in our share price.”

At $26.25 per share, current investors are up 7.36% on top of the 3.04% dividend. McCain is optimistic that Maple Leaf’s major capital investment will deliver significant returns and should reflect in the share price soon.

Steady performers

The steady performances of North West and Maple Leaf indicate that the respective businesses can endure recessionary periods. Any drop in the share prices is temporary and should recover eventually when high inflation recedes.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool recommends North West. The Motley Fool has a disclosure policy.

More on Dividend Stocks

grow dividends
Dividend Stocks

3 Canadian Stocks With a Real Chance of Doubling Your TFSA’s Value

Three outperforming Canadian stocks can help TFSA investors double their account balances.

Read more »

Hand writing Time for Action concept with red marker on transparent wipe board.
Dividend Stocks

3 No-Brainer Stocks I’d Buy Right Now Without Hesitation

At any given time, the market may have certain stocks that offer a powerful combination of reliability, potential, valuation, etc.,…

Read more »

money cash dividends
Dividend Stocks

This 8.39% Dividend Stock Can Pay $100 Cash Every Month

Consider investing in this monthly dividend stock at current levels to lock in high-yielding monthly distributions to create a good…

Read more »

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Dividend Stocks

Here’s the Average TFSA Balance in 2024

The Bank of Montreal (TSX:BMO) says that the average TFSA balance is $41,510, far below the maximum.

Read more »

A glass jar resting on its side with Canadian banknotes and change inside.
Dividend Stocks

Investors: Here’s How to Make $1,000 Each Month in Retirement

Here's how you can easily make $1,000 in monthly passive income in retirement in Canada, without taking on too much…

Read more »

man touches brain to show a good idea
Dividend Stocks

3 No-Brainer TSX Stocks I’d Buy Right Now Without Hesitation

Three TSX stocks that continue to overcome massive headwinds and beat the market are no-brainer buys right now.

Read more »

calculate and analyze stock
Dividend Stocks

TFSA Investors: 2 Top TSX Dividend Stocks to Buy on a Dip and Hold Forever

These top TSX dividend stocks now offer attractive yields and big potential capital gains.

Read more »

grow money, wealth build
Dividend Stocks

1 Dividend Stock to Buy for Growth and Stay for a 5.5% Yield

This dividend stock has been rising higher, but more could certainly be on the way. Now is the time to…

Read more »