There was a moment in this week’s episode that landed quietly but hit hard. We’d just finished dissecting a flurry of M&A headlines such as Unilever in talks with Kraft Heinz, then pivoting to sell its food business to McCormick, Danone acquiring Huel, Pernod Ricard in discussions with Brown-Forman, and Edgi put it plainly: “It’s not big food merging to grow. It’s more like acquisitions and mergers to survive.“

That’s a sentence worth sitting with if you’re a dividend growth investor who has long counted on consumer staples for the “sleep well at night” part of your portfolio.

Episode 289 was one of those episodes where the news flow does the work. No guest, no single main topic. Just a week so busy with corporate activity that we spent nearly 50 minutes on it before even getting to dividend hikes or listener questions. And running through almost all of it was a single uncomfortable thread: the secular tailwinds that built the great consumer staples franchises of the last three decades are gone. What’s left is companies repositioning under pressure, hoping the market doesn’t notice they’ve changed their story.

Why “Defensive” Doesn’t Mean What It Used To

Consumer staples were never supposed to be exciting. They were supposed to be reliable with steady cash flows, growing dividends, and a business model anchored to things people will always need: food, drink, cleaning products, personal care. The deal was that you gave up upside for predictability.

That deal is getting harder to honour.

Edgi made the case clearly: globalisation, the great tailwind that let companies like Unilever expand shelf space and margin simultaneously across emerging markets, is in reverse. The pricing power that consumer staples companies leaned on post-COVID (what he diplomatically called “shrink-flation”) has been largely exhausted.

Consumers are hitting back, trading down to own-label products. And sitting behind all of this, getting very little attention in investor relations decks, is a demographic headwind that neither management teams nor sell-side analysts seem eager to name out loud: population decline in the developed world’s biggest consumer markets.

“Have you ever seen an investor relations presentation that started with a slide showing population decline as a trend?” Edgi asked. Neither of us had. And that absence, he argued, probably isn’t reassuring.

The honest summary: for the big, mature players in food and beverages, getting 6–7% dividend growth annually is now a stretch. Inflation-level growth, call it 2–3%, is more realistic for most of them. That doesn’t make them uninvestable, but it does mean the role they play in a dividend growth portfolio needs to be reassessed.

Big Food Merging to Grow.

The Unilever story is the most instructive here. The company is simultaneously in talks to merge its food division with Kraft Heinz (a company Edgi memorably described as “the prostitute of Wall Street” based on its catastrophic M&A track record), and separately exploring selling that same food business to McCormick via a reverse Morris trust structure. Meanwhile, CEO Fernando Fernandez is publicly signalling that the future of Unilever is beauty, wellbeing, and personal care and not food, which grew just 2.5% last year.

Edgi’s read was sharp: “This is Unilever in two or three years from now is not the same anymore as people have known it for decades.” The company that was once a foundational European dividend name could morph into something closer to a cosmetics play, more L’Oréal than Lipton. That’s not necessarily bad, but it’s a fundamentally different company, and shareholders who bought Unilever for what it was need to decide whether they want to own what it’s becoming.

For existing Unilever holders, the practical question is what happens to any spun-off food entity. Both of us landed in the same place: we’d probably keep it, at least initially. Spin-offs tend to sell off in the short term as employees and index funds exit, and they often quietly outperform over the following two to three years once the dust settles. The key watchpoints are the dividend policy and the debt load as companies have a habit of offloading leverage onto the spun entity to clean up the parent’s balance sheet.

The Pernod Ricard / Brown-Forman discussion followed a similar logic. Two great family-owned spirits businesses, Brown-Forman dates back to 1870, potentially merging not because the combined entity would be a growth juggernaut, but because alcohol consumption is declining across developed markets, particularly among younger consumers.

Neither business has a great answer to that trend on its own. Together, they might at least have a tidier balance sheet and shared distribution costs. It would create a business approaching Diageo in scale, nearly 200 million litres of drinks sold annually, market cap around €30 billion, but the cultural complications of combining two multi-generational family businesses shouldn’t be underestimated.

“Sounds like an episode of Succession,” Edgi noted. He’s not wrong.

And if this merger does happen, expect a dividend reset. Both companies are under earnings pressure. The merger would create a perfect window to cut, restructure, and rebase. Dividend growth investors should build that into their expectations rather than be surprised by it.

What Dividend Growth Investors Should Actually Do

None of this means abandoning consumer staples. It means being more selective about which consumer staples and more honest about what you’re getting.

The Danone/Huel deal is actually a more encouraging story than the others as a relatively small bolt-on acquisition of a fast-growing functional nutrition brand, well within Danone’s balance sheet capacity (€17 billion in equity, €6.5 billion in cash), with genuine distribution synergies through Danone’s supermarket relationships. Whether Huel has lasting consumer demand as a category or is a trend that plateaus is a fair question, but the CEO’s track record at Danone has been consistently strong, and this feels like growth investing rather than defensive repositioning.

The broader portfolio principle that emerged from the episode is one we’ve talked about before but is worth restating: your consumer staples holdings can still earn their place as a lower-growth, high-reliability foundation but only if you’re honest about that role.

If you’re expecting 6–7% annual dividend growth from Unilever or Pernod Ricard right now, you’re likely to be disappointed. If you’re expecting 2–3% growth, reasonable yield, and capital preservation in a downturn, there’s still a case for them.

The Wider Picture

One listener’s question framed the underlying issue as well as anything: with declining birth rates across most major developed economies, what does the long-term look like for consumer staples companies in increasingly saturated, shrinking markets? It’s the question that nobody in a boardroom seems willing to put on a slide.

We (I) gave management the benefit of the doubt. These are smart people with long planning horizons, and Unilever’s exposure to India, a market where demographics still run in the right direction, is a genuine partial hedge. But the honest answer is that the tailwinds are weaker than they were, and the companies that respond by doing deals are as likely to be managing decline as chasing growth.

Consumer staples are not broken as an asset class. They’re just more complicated than they used to be. Understanding that is the starting point for holding them well.

if you looking for inspiration than check out The Best European Dividend Stocks to Buy in 2026 – DividendTalkPodcast

Listen to the full conversation — Episode 289 of the Dividend Talk Podcast wherever you get your podcasts

Join the Dividend Talk community on Discord and Facebook — we read and discuss every listener question.

Dividend Talk is co-hosted by Derek (Ireland) and Edgi (Netherlands), two European dividend growth investors sharing the weekly work of building long-term income portfolios. This post is for informational purposes only and does not constitute financial advice.