Consider taking a closer look at Tesco Plc, Prudential Plc, British American Tobacco Plc, Unilever Plc, and Legal & General Group Plc.
The outbreak of the novel coronavirus struck the global markets at the beginning of this year 2020. The stock markets saw severe wealth erosion which left investors high and dry. This triggered panic selling by the investors. Most of the markets across the globe bled due to the economic impact of the deadly pandemic. The FTSE 100 was hovering near 7,500 mark in the mid of February 2020. It slipped below the 5,000 mark by the mid of March 2020. Market experts believe that most of the blue-chip companies have undergone a steep price correction.
Parking your disposable income in a stock market would mean identifying and investing in businesses with growth catalysts. In this article, we have restricted our search to FTSE 100 basket. The FTSE 100 index or Footsie intends to portray a broader picture of UK market. The businesses included in the FTSE 100 index have global footprint and are ranked in order of their market capitalisations.
The top 25 businesses are considered as heavy weights of the index. Price fluctuations in the securities of these businesses would determine the course of FTSE 100 index. The FTSE 100 index is also used by institutional investors and market experts as a tool for diversification of their portfolio. We have restricted our search to FTSE 100 basket because it has premium listings, in which chances of price manipulations and other malpractices are significantly less.
Another reason why FTSE 100 index attracts most of these investors is liquidity. With liquidity in the market, buying and selling of securities is easier. Though the markets are not always efficient, but stock prices of businesses, which are constituent of the FTSE 100 index usually reflect the strength of their fundamentals.
In addition, people looking for passive income sources could look forward to dividend paying stocks. A dividend stock is an ownership share of the shareholder in a company which pays a portion of the profits while systematically creating a stream of income. Based on the pay-out ratio of the company, the dividend is given to the shareholders. For example, if a company has a pay-out ratio of 50 per cent, it means that it will be distributing 50 per cent of its retained earnings to its shareholders and the remaining half shall be used to clear its short-term obligations, further investments of the company, and launch of any new product. The company tries to compensate both its common shareholders and the preferred shareholders, where the priority is given to the preferred shareholders.
There is no difference in buying a stock and buying a dividend stock. People prefer to have a dividend stock in their portfolio as it possesses the feature of compounding. Compounding means that the dividend earnings would be reinvested over a period. It is important to note that the dividend pay-out should ideally be at par with the inflation rate to generate a better income from these stocks.
In this article, we would be discussing five companies, which have resilient business model and growth catalysts to see through the unprecedented crisis and sustain in the long-term. The nature of business in which these companies operate is non-cyclical in nature, which implies they have stable revenue streams irrespective of the economic cycle. These companies have made consistent dividend payments in the past and have a higher dividend pay-out ratio.
(Dividend Pay-out ratio, Source: Refinitiv, Thomson Reuters)
- Tesco Plc
Tesco Plc (LON: TSCO) is a multinational retailer of general merchandise and has been under investors radar lately. During the unprecedented crisis, total sales of Tesco Group increased by 7.9 per cent on Like-for Like basis. The growth was primarily derived through surge in online sales, as they were up by 48.5 per cent during the first quarter of 2020. Since the stock market crashed in mid of March 2020, the stock has recovered by around 8 per cent. With consumer confidence still low, the company is likely to witness stable demand of online orders.
On 11 August 2020, at 10:59 AM, Tesco Plc shares were 0.93 per cent up against its previous day closing price and were trading at GBX 227.50.
- Prudential Plc
Prudential Plc (LON: PRU) is an FTSE 100 financial services company primarily dealing in insurance services. The financial sector has been under the pump since the onslaught of the novel coronavirus. With the prevalent interest rates at an all-time low of 0.1 per cent, this could possibly lead to reduced investment returns due to impairment of debt securities and loans. The gross premiums earned by the company were slightly down by 5.88 per cent in the first half of 2020, in comparison to the same period previous year. However, the company declared its first interim dividend for 2020 of 5.37 US cents per share.
With gradual easing of lockdown, most of the businesses have recommenced economic activities. This should bolster the revenue streams of the company.
Since the stock market crash in mid of March 2020, the stock has recovered by around 80 per cent. On 11 August 2020, at 10:55 AM, Prudential Plc shares were 2.96 per cent up against its previous day closing price and were trading at GBX 1,268.
- British American Tobacco Plc
British American Tobacco Plc (LON: BATS) is a London, United Kingdom domiciled multinational consumer goods company which primarily deals in tobacco and related products. The company’s reported profit from operations was up by 16.4 per cent to £5,097 million in the first half of 2020. The demand for tobacco and related products is unfazed by the outbreak of the coronavirus pandemic. Since the stock market crash in mid of March 2020, the stock has recovered by around 10 per cent.
On 11 August 2020, at 10:54 AM, British American Tobacco Plc shares were 2.06 per cent up against its previous day closing price and were trading at GBX 2,596.
- Unilever Plc
Unilever Plc (LON: ULVR) operates in fast-moving consumer goods segment and has a global presence. The company’s performance has been unfazed by the onslaught of novel coronavirus. The company’s quarterly dividend stood at €0.4104 per share. The company diversified its portfolio by acquiring Horlicks brand from GSK. The company shall focus on increasing its sales volume to maximise shareholder’s wealth for the remaining part of 2020. Since the stock market crash in mid of March 2020, the stock has recovered by around 19 per cent. On 11 August 2020, at 10:53 AM, Unilever Plc shares were 1.06 per cent up against its previous day closing price and were trading at GBX 4,568.
- Legal & General Group Plc
Legal & General Group Plc (LON: LGEN) is engaged in providing products and services related to insurance and investment management. The company’s operating profit in the first half of 2020 was largely in line with the pre-pandemic levels. Since 2011, the EPS (earnings per share) of the company has grown at a CAGR of 11 per cent. The company expects to drive growth across the UK in the near future. It has declared an interim dividend of 4.93 pence per share in its first half results of 2020. Since the stock market crash in mid of March 2020, the stock has recovered by around 72.07 per cent.
On 11 August 2020, at the time of writing (before market close, GMT 10:51 AM +1), Legal & General Group Plc shares were 1.93 per cent up against its previous day closing price and were trading at GBX 237.50.
(Market capitalisation on 11 August 2020, at GMT 11:10 AM+1, Source: London Stock Exchange)
These selected stocks belong to retail, FMCG, and financial services sectors which were operational during the unprecedented crisis. As most of the sectors in the UK are on the path to recovery, investment in these sectors could certainly appreciate in future. Additionally, investors can reap dividends and supplement their incomes or reinvest them to witness the power of compounding, if held over a long period of time.