If you can’t rely on the Bank of England, who can you rely on? Those who took governor Mark Carney’s contradictory pronouncements too seriously will be all of a tizzy today. The unreliable boyfriend has struck again. Weeks after dropping seductive hints about a base rate hike in the near future, Carney has backed away from any immediate commitment, the little tease. Savers hoping to get a better rate on cash have once again been left standing embarrassed at the altar.
Cut And Run
Of course you can’t put all your faith in FTSE 100 stocks either. As investors in companies as varied as Aviva, BP, Centrica, Barclays, Lloyds Banking Group, Standard Chartered, Tesco and others have discovered to their cost, profits can fall, and dividends can be cut or cruelly dumped. There are no guarantees in life, or investing. But some companies are more reliable than others.
I’m particularly thinking of household goods giants Reckitt Benckiser Group (LSE: RB) and Unilever (LSE: ULVR). Their 10-year performance charts both show a steady upward sweep, with only a few brief hiccups along the way. Over five years, they have grown 80% and 50% respectively. The FTSE 100 as a whole is up just about 10% over the same period.
Household Favourites
That’s a heady combination of defensive investment and stock market out-performance, a combination that isn’t easy to find. My major quibble when examining these two stocks over the years is that they are typically expensive, often trading at more than 20 times earnings. But as these past performance figures show, that was a price worth paying.
Both stocks are still pricey today, with Reckitt Benckiser perhaps a little too expensive, even for avid fans like me, at 27 times earnings. Forecast earnings per share growth of 7% in 2016 only partly justify that. The rest is down to its reputation — in an uncertain world, the company’s vast and growing array of solid everyday brands are the old reliables. You may give brands such as Durex, Clearasil, Dettol, Harpic, Scholl and Vanish little conscious thought, but they have been part of your life for as long as you can remember.
The downside is that Reckitt’s yield is a disappointing 2.2% at a time when many stocks are yielding 6% or 7%, or even more. It is certainly reliable, but if that doesn’t quite tempt you, Unilever looks comparatively cheap at 17.7 times earnings and yields a more generous 3.13%.
Competitive, profitable, consistent
Unilever could easily be more expensive, given that, like Reckitt, its sales have survived the emerging market slowdown, helped by double-digit growth in China and Latin America. It is even growing sales in recession-hit Brazil. Chief executive Paul Polman has neatly summed up what investors like about Unilever: “Our model of competitive, profitable, consistent and responsible growth is built on sustained investment in our brands, infrastructure and people.“
Nobody buys Reckitt Benckiser or Unilever in the hope that they will shoot the lights out, but over the last five years that’s exactly what they have done, in relative terms. Steady, reliable growth should be the order of the day from now on. But given recent sparkling outperformance, who knows? If you think Reckitt Benckiser looks pricey, for once, at least, Unilever does not.
