My 3 Favorite Stocks to Buy Right Now

Key Points

• Broadly speaking, investors have taken a negative view of consumer staples stocks.

• There are headwinds in the consumer staples space, but that doesn't mean that investors should jump ship.

• If you are a long-term dividend investor there are still some big opportunities in dividend paying consumer staples stocks.

• 10 stocks we like better than PepsiCo ›

I'm a dividend investor with a preference for buying well-run companies while they have historically high yields. While I believe this approach helps me build a strong dividend stock portfolio, it often means buying while others are selling.

And that requires a deep consideration of what I am buying to make sure I own fundamentally strong businesses that are likely facing only temporary headwinds.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue »

I think that's the case today with these three consumer staples icons, all of which I happily own despite their current troubles.

Image source: Getty Images.

1. PepsiCo is doing the right things

PepsiCo (NASDAQ: PEP) is a relatively recent addition to my portfolio and one that I topped up on not too long after initiating a position. The dividend yield is 3.9%, which happens to be near the highest levels in the company's history. That said, the dividend has been increased for more than 50 consecutive years, making PepsiCo a Dividend King. This is no fly-by-night dividend stock.

Truth be told, PepsiCo isn't hitting on all cylinders right now. But even great businesses go through hard times, so that doesn't bother me. Given the dividend history, I believe management will find a way to muddle through to better days. And the business I am buying is pretty impressive.

PepsiCo is one of the largest beverage makers in the world, the largest salty snack company, and a powerhouse in the packaged food space. That's an incredible amount of diversification backed by a company that can stand toe to toe with any of its peers with regard to scale, distribution, marketing, and research and development.

On top of that, PepsiCo has the wherewithal to be an industry consolidator, too. PepsiCo isn't perfect, but I'm willing to give this Dividend King the benefit of the doubt, collecting a fat yield while I wait for better days.

2. Clorox is making steady progress

Another stock I recently added to was Clorox (NYSE: CLX), again topping up a position I had initiated earlier. The dividend yield is around 3.7%, which is toward the high end historically for the consumer staples maker. The dividend has been increased annually for 48 consecutive years, leaving it just two years shy of Dividend King status.

What's interesting about Clorox is that it is a somewhat eclectic business. It is best known for its cleaning products, but it also has dominant positions in charcoal, kitty litter, plastic bags, and salad dressing.

That's not the entire list of what it does by a long shot. All consumer staples companies are brand managers, but Clorox really takes this to the next level, with an intense focus on innovation and brand extension in niches where it believes it can differentiate from the pack.

That said, a demand spike during the coronavirus pandemic and a subsequent hacking event have led investors to avoid the stock.

Investors got way too excited about Clorox during the pandemic, extending estimates of what was temporary demand way too far into the future. Then came inflation and the hack, which have all hurt profit margins. Management has worked dutifully to build margins back, and I'm pleased to let this unique consumer staples maker pay me well while I wait for better days (and for the stock to become a Dividend King).

3. Hershey is tougher to love

The last stock up is iconic chocolate maker Hershey (NYSE: HSY). It has a dividend yield of 3%, which, as you might have guessed, is near the high end of the stock's historical yield range. While it is nowhere near being a Dividend King, the dividend has trended higher over time.

Right now, Hershey is dealing with a major cost headwind because cocoa prices have skyrocketed. Given that chocolate is probably the most important product this confectionery giant makes, that's a big issue. There's no easy fix, either, given that cocoa comes from trees. High commodity prices are likely to bring investment into the cocoa space and result in lower commodity prices, but trees still take a long time to grow.

I'm not worried because I believe I have a very important shareholder on my side. The Hershey Trust, a philanthropic entity, effectively controls Hershey, the company. The Trust uses the dividends it collects to support its giving efforts, so it wants a company that produces a reliable and growing dividend over time.

That's exactly what I want, too. And since the Trust thinks long-term, its massive ownership stake in Hershey the company allows the company to think long-term, as well. In other words, Hershey can do what's right for the business without worrying about what Wall Street, with its short-term focus, thinks. I believe that will lead to a positive outcome for me and the dividend I'm collecting every quarter.

Sitting through the bad times to get to the good times

It isn't easy buying companies like PepsiCo, Clorox, and Hershey today. They are all dealing with headwinds that make them look like they are performing poorly. But history suggests that they will find a way to survive and thrive over the long term.

I'm willing to look at the businesses that back these dividend stocks and jump in despite the headwinds. In fact, you might even say I'm jumping in because of the headwinds. If you don't mind being a contrarian investor, too, these are three of my favorite high-yield dividend stocks right now.

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Reuben Gregg Brewer has positions in Clorox, Hershey, and PepsiCo. The Motley Fool has positions in and recommends Hershey. The Motley Fool has a disclosure policy.