Ask 10 investors which share in the FTSE 100 (INDEXFTSE: UKX) is the most reliable and you might get 10 different responses. Some might choose a utility company for its steady earnings stream. Others might opt for a big pharmaceutical, since medicine will always be needed. Even a relatively volatile share like oil giant Royal Dutch Shell might be selected, if only for the fact that it hasn’t cut its dividend since World War II. For me, however, a front-runner would be distribution and outsourcing provider, Bunzl (LSE: BNZL). Here’s why.
Enviable track record
For evidence of the £8bn cap’s reliability, take a look at the performance of its shares over the last five years. Priced at 795p in August 2011, Bunzl’s shares now trade for 2,416p, a rise of over 300%. All this from moving paper cups, gloves and food packaging around the globe.
This rise in value has been almost boringly predictable thanks to net profit increasing every year. Return on capital employed (a decent indicator of a company’s quality) has stayed fairly constant at around 16% during this period. And while Bunzl’s bi-annual payouts aren’t huge (1.7% yield), its 23-year history of consistently raising dividends shows why it’s held in such high esteem.
Contrast this with the fortunes of many of the FTSE 100’s biggest companies over the past year or so as their investors worried over the possibility of cuts to the annual payouts. It doesn’t matter how large a dividend is offered if the chances of it being sacrificed are high. And while investing in, for example, UK housebuilders at the height of the financial crisis or, more recently, during the initial fallout from June’s referendum may have served investors well, it involved considerably more risk. Higher risk usually means the possibility of higher returns but, given the choice, I’d go for boring but consistently profitable and geographically diversified companies every time.
Decent interims
Today’s interim results show little sign of Bunzl slowing down. Group revenue for the first half of 2016 increased to £3,446.8m from £3,135.2m the year before, with operations in Continental Europe performing particularly well. Adjusted operating profit was £235.1m, 13% higher than 2015’s £208.4m. Adjusted earnings per share were 46.2p, an increase of 12%. All this during a period that saw the company face challenging macroeconomic conditions and the retirement of long-standing CEO Michael Roney. Bunzl’s excellent history of raising dividends also continues with an increase of 11% in the interim dividend to 13p.
Despite initially rising, the share price has now retreated to where it started the day, leaving the company on a price-to-earnings (P/E) ratio of 23.
Future prospects
Improved revenue and reliable dividends are all very well but can they continue? Quite possibly. In addition to today’s strong set of results, Bunzl also announced the acquisition of three companies, bringing the total to eight in 2016 so far. Two of these are based in Canada (hygiene product suppliers Plus II and Apex) with the other in Hungary (disposable food service item supplier Silwell), further underlining the company’s global presence.
It doesn’t look like things will stop here either. In addition to stating that Bunzl would continue to invest in IT and digital projects, CEO Frank van Zanten also reflected that the company has “an active pipeline of opportunities for further acquisitions” and expects to “complete more transactions during the rest of the year.“
