4 reasons I’ve bought this FTSE 100 stock in July

Paul Summers reveals one FTSE 100 (LON:INDEXFTSE:UKX) stock that’s found its way into his portfolio.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

The FTSE 100 index has been in fine form so far in 2019 but that’s not to say all of its constituents have been in demand.

One out-of-favour stock I’ve been unable to resist adding to my portfolio this month has been cruise operator Carnival (LSE: CCL). Here’s why.

1. Growing demand

If you think cruise holidays are just for people of a certain age, think again. While it’s true that increasingly active retirees still make up the majority of those taking to the seas, there are signs that younger generations, driven by the desire for Instagrammable experiences over possessions, are keen to get in on the act. 

According to Cruise Lines International Association (the industry’s largest trade association), “the appeal of multiple destinations and unique experiences, such as music festivals at sea“, is attracting more and more members of Generation Z — those born between 1995 and 2010 — to become cruisers.  

But increasing popularity across the age range is just one source of future growth. Rising wealth in emerging economies such as China is likely to be a boon for operators like Carnival going forward.

As things stand only 2.4m of its population take cruises, far below the near-12m from the US. That could all change over the next decade or so.

2. Dominant position

Carnival is the largest cruise operator by some margin.

Through its 10 brands (including P&O, Princess and Cunard) and a fleet of over 100 ships, it boasts a market share of roughly 50% — double US-listed rival Royal Caribbean’s slice of the cruising pie. Its proportion of global passenger capacity looks likely to climb even higher over the next few years with the launch of several new ships. 

If, like star fund manager Terry Smith, you’re looking for companies that have “already won” the race to be the best in their respective industries, Carnival surely ticks the box.

3. Going cheap

Despite the encouraging outlook for the industry, anyone unfortunate enough to buy the shares at their all-time high back in August 2017 would now find their position under water by around 35%. Given ongoing geo-political events, that’s not altogether unexpected.

The most recent ‘big fall’ came last month after the company reduced its profit forecast for the full year as a result of the US government’s decision to ban cruises to Cuba, a dip in demand in Europe and mechanical problems with the Carnival Vista ship.

Things could remain choppy for a while. In the meantime, Carnival’s stock changes hands at just 10 times forward earnings. Its average P/E over the last five years has been 18.

If you subscribe to the belief that stocks revert to the mean over time, the £24bn cap could be a great buy at these levels. 

4. Decent dividends

It may not boast the biggest payouts in the FTSE 100, but Carnival certainly isn’t stingy when it comes to returning cash to holders. The divided has been hiked by double-digits in each of the last four years.

Analysts have pencilled in a $2.01 per share for the current financial year, giving a yield of around 4.6% at the current share price.

While it’s never wise to depend on a single stock for income, the fact that it’s predicted to be covered over twice by profits does imply that Carnival’s payout is a lot more secure than others in the top division

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 considered so you should consider taking independent financial advice.

Paul Summers owns shares in Carnival. The Motley Fool UK has recommended Carnival. 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.

More on Investing Articles

Storytelling image of a multiethnic senior couple in love - Elderly married couple dating outdoors, love emotions and feelings
Investing Articles

1 dividend stock with a juicy yield to boost returns!

This Fool likes the look of this dividend stock to boost his passive income stream and explains why he would…

Read more »

Happy male couple looking at a laptop screen together
Investing Articles

Here’s 1 growth stock primed for long-term growth and returns!

Jabran Khan is hunting for a growth stock to boost his holdings. Could this financial advisory business be the right…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

3 FTSE 250 shares I bought for extra dividends

I plundered the FTSE 250 index to find these three cheap stocks with ailing share prices. All three firms pay…

Read more »

Young brown woman delighted with what she sees on her screen
Investing Articles

I’m buying cheap FTSE 100 stocks to boost my passive income!

Buying dividend stocks today could considerably improve the amount of passive income I make. Here are some FTSE 100 stocks…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

Am I crazy for buying Royal Mail shares?

Royal Mail shares have collapsed by almost half in 2022. And with group profits falling and strike action under way,…

Read more »

Shot of a young Black woman doing some paperwork in a modern office
Investing Articles

2 recession-resistant stocks to buy right now

After the pandemic slump, we're now facing a UK recession. Many are looking for recession-resistant stocks to protect their money.

Read more »

Engineer Project Manager Talks With Scientist working on Computer
Investing Articles

This FTSE 100 stock continues to fall! Should I buy shares?

This Fool takes a closer look at a FTSE 100 quality assurance stock. As the shares continue to fall, is…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

Is the Rolls-Royce share price about to surge?

The Rolls-Royce share price continues to fall as market patience wears thin. But could it be on the brink of…

Read more »