Why I’d buy this FTSE 100 dividend champ to protect against a no-deal Brexit

Even if the UK crashes out of the EU, this FTSE 100 (INDEXFTSE: UKX) income champion should continue to profit.

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You might not have heard of Coca-Cola HBC (LSE: CCH), but I’m sure you will have used one of its products recently. The firm bottles drinks for Coca-Cola, including the likes of Coca-Cola, Coca-Cola Zero, Coca-Cola Light, Fanta, and Sprite, as well as water, juice and energy drinks, for markets across Europe.

In my opinion, this makes the company one of the best investments around to protect your portfolio against Brexit. No matter what the outcome, demand for soft drinks throughout Europe is unlikely to change as a result of Brexit.

What’s more, virtually all of the company’s products are sold in European markets, so if the UK economy struggles after a no-deal, Coca-Cola HBC should continue to profit. Indeed, thanks to its geographical diversification, and defensive product line up, management expects the overall impact from Brexit on the group to be “minimal.” 

I’m also attracted to the company’s dividend credentials. For the past five years, Coca-Cola HBC has increased its dividend at a rate of 10% per annum. Based on current figures, the payout is covered 2.3 times by earnings per share (EPS), which gives plenty of room for further payout growth. 

With EPS set to grow 19% over the next two years, in this period I reckon the dividend will grow faster than it has in the past. There’s also significant scope for earnings growth from current levels as management believes the European market is “fertile for price increases.” This tells me the outlook for Coca-Cola HBS’s dividend is extremely positive. 

Falling sales 

Talking of flowing liquids, Rotork (LSE: ROR), the market-leading producer of flow control products, is sliding today after the firm reported a 4% decline in order intake, or by 2% on an organic constant currency basis. 

These figures seem to imply that the company’s growth is going to slow in the near term, a reality that is at odds with the stock’s current valuation of 22.9 times forward earnings. I’m always wary of buying high-priced stocks for this reason. If growth doesn’t live up to expectations, then the resulting sell-off can be sudden and aggressive. I don’t want to be on the wrong end of a profit warning. 

With this being the case, I’m not a buyer of Rotork today. As of yet, we don’t know if this decline in order intake is a one-off, or a sign of things to come. If it is a sign of things to come, I reckon the downside from current levels could be significant, considering the current premium valuation investors are placing on the shares. 

The one redeeming feature of this business is its strong balance sheet. According to today’s trading update, Rotork had a net cash balance of £12.2m at the end of October. Unfortunately, this isn’t enough to convince me that the business is worth buying, and neither is the token dividend yield of 2%. I would much rather add Brexit-proof Coca-Cola HBC to my portfolio.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Rotork. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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