Seek dividends from the brands that won’t let you down in a crisis
UNILEVER’S brands range from Ben & Jerry’s ice cream to Persil washing powder, Domestos detergent and Sure, the deodorant that, famously, ‘won’t let you down’.
Reckitt has Durex, Nurofen and Harpic among its list of leading brands. Everyday products, these names have stood the test of time and remain trusted by consumers across the developed world. Many are being successfully rolled out in emerging markets too, as people in regions such as Asia and Latin America become wealthier and turn to respected global brands.
Diageo is slightly different, because it focuses on alcohol, with an array of well-known tipples including Smirnoff, Johnnie Walker, Baileys and Guinness. The company is particularly strong in North America, but it operates worldwide and is growing fast in Asia.
All three firms have an important characteristic in common: they sell millions of products to millions of people every single day. A minority Conservative Government in the UK is unlikely to change that. It might even encourage consumption of Diageo’s wares.
The shares do not come cheap. Diageo is 2326p and the forecast dividend is 63p, putting the stock on a yield of 2.7 per cent. Unilever is 4328p and pays its dividend in euros, which means shareholders benefit if sterling experiences a prolonged period of weakness. The 2017 dividend is forecast at €1.42, which translates to 125p, delivering a yield of 2.9 per cent.
Reckitt shares change hands at 7954p and a dividend of 169p is expected this year, giving a yield of 2.1 per cent. Shelling out up to £80 for one share can unsettle some investors, but in reality, the cost is not the most important thing in this case – what matters is the direction of travel. These three are almost bound to deliver over the long term, particularly if investors reinvest their dividends year in, year out. Housebuilders are at the slightly riskier end of the shares spectrum. Most of them fell at the end of last week on concerns that the economy could slow down, stalling demand for new homes.
It is difficult to predict how the housing market will evolve in the coming months and years. House prices are not rising as fast as they were, but the UK still suffers from a chronic shortage of homes and that is unlikely to change soon. Most builders offer generous dividends as well, so those in slightly special situations could be rewarding. Bovis Homes is a case in point. It has been through a troubled period, issuing a shock profit warning in December and admitting it would build fewer than expected homes in the year. Chief executive David Ritchie resigned days later and Bovis was then subject to bid approaches from two rivals, Redrow and Galliford Try. Both were rejected and in April the firm appointed former Galliford boss Greg Fitzgerald as its new chief executive. Fitzgerald, 53, started out in the sector as a 17-year-old tea boy and is admired as one its leading lights, known for calling the property market better than most and taking decisive action when necessary. He is likely to follow suit at Bovis. The shares fell a penny to 922p on Friday but they should recover, as Fitzgerald takes the firm in hand. A dividend of about 45p is expected this year too, putting the shares on a yield of almost 5 per cent.
Gleeson Homes offers another twist on the housebuilding market, as it specialises in affordable homes, mainly in the North of England. Recommended by Midas in 2011 at 104p, the shares had risen to 612½p when we last looked at them in March of this year and they have since risen further to 655p.
THE price was barely changed after the Election result and the 2017 dividend is forecast at 19½p, putting the shares on a yield of just under 3 per cent. This is at the low end of the range among builders, but Gleeson’s affordable homes formula has seen the company grow by leaps and bounds over the past six years and it should continue in a similar vein.
And if top brands or housebuilders do not appeal, some investors might fancy low-cost retailers, such as B&M European Value
Retail or Conviviality, which owns Bargain Booze and Wine Rack. SOLID: Strong brands like Ben & Jerry’s and famous tipples, below, will weather the storm
Chaired by former Tesco boss Sir Terry Leahy, B&M has more than 500 stores, selling a huge range of non-food items, from garden furniture to microwaves to toys, all at bargain basement prices. Results last month showed profits up 18 per cent to £183million for the year to March 25 and a 21 per cent increase in the dividend to 5.8p.
B&M shares have done well over the past year and now trade at 357p, but if consumers decide to tighten their belts, the company should benefit and the shares should rise. Brokers expect the price to top 400p in the next 12 months.
Conviviality may also prosper if the UK economy falters and people seek solace in the bottle. Tipped by Midas in 2013 at 144½p, the shares have more than doubled to 308p and the firm has been transformed. Having bought leading distributors Matthew Clarke and Bibendum, it is now the largest independent drinks wholesaler in the UK and operates more than 700 off-licences on a franchise basis.
The stock has performed well but it should continue to rise, with the market suggesting the price will reach about 380p by next summer.