£5K to invest? This defensive dividend stock is one of my top picks!

Jabran Khan looks into this well-known defensive stock as it releases its full-year results and tells you why he regards it as one of his top picks!

| 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.

In an economic downturn, investors turn to defensive stocks or those that possess a significant moat. I believe certain food production companies possess defensive qualities and therefore are good buys during a market crash.

One of the byproducts of the current economic downturn has been the increased demand for food products. Tate & Lyle (LSE:TATE) is a defensive stock I like the look of, even more so with the announcement of its full-year results.

5 Stocks For Trying To Build Wealth After 50

One notable billionaire made 99% of his current wealth after his 50th birthday. And here at The Motley Fool, we believe it is NEVER too late to start trying to build your fortune in the stock market. Our expert Motley Fool analyst team have shortlisted 5 companies that they believe could be a great fit for investors aged 50+ trying to build long-term, diversified portfolios.

Click here to claim your free copy now!

Defensive stock qualities

Consumer staples such as food items are essential for everyday use. Food items are the types which households are unwilling or unable to eliminate from their budgets even in times of financial trouble. As a defensive stock,  Tate & Lyle has continued to trade well despite the current economic situation. 

TATE originally started as a sugar refining business in the 1920s. It began to diversify its product range in the 1970s. Its primary focus now lies in producing bulk ingredients for food manufacturers. It is also the exclusive UK producer of Splenda artificial sweetener. 

Results and performance

Tate & Lyle has decided to maintain its final dividend, which is positive news for shareholders and potential investors alike. In addition, it reported favourable results in its full-year report released at the end of last week. TATE confirmed March showed limited impact from the pandemic while April showed significant changes in demand patterns. 

In the year to 31 March, revenue rose 2% to £2.8bn while profit before tax was up 4% to £331m. TATE’s dividend for the year rose by 0.7% to 29.6p after the maintained final payment. Its free cash flow was up £35m compared to the previous year. 

Aside from the good results, TATE confirmed that in order to increase liquidity it will be freezing all discretionary salary increases and non-essential spending, as well as halting recruitment. None of its employees have been furloughed and no government aid has been sought so far. In my opinion these are shrewd steps to ensure the business is protected in the current downturn. 

Sweeter than sweet

I think this is a great defensive stock. TATE’s share price is down nearly 20% due to the market crash, which means shares can be picked up cheap. Its price-to-earnings ratio of close to 12 means it will recover sooner rather than later, so now may be an opportune time to pick up shares cheaper than usual. 

As well as the current cheap share price, TATE has just reported great full-year results. It has taken the necessary steps to protect itself from the market downturn. TATE currently has nearly £1bn in liquidity through cash on hand and an undrawn rotating credit facility. 

Past performance is also positive for the food manufacturer. Revenue and dividend per share have increased for the past three years. Profit has been over £200m in the previous three years too.

If you add to all these compelling facts, a dividend yield of over 4%, what’s not to like? This would sit firmly in my buy and hold category of investments.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

Jabran Khan has no position in any of the shares mentioned. 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

A Rolls-Royce employee works on an engine
Investing Articles

In penny stock territory, is the Rolls-Royce share price set to soar?

The Rolls-Royce share price has sunk recently, falling into penny stock territory. But with flying hours recovering, is it too…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

Lloyds shares drop 20% in 4 months. Should I buy now?

Lloyds shares have lost a fifth of their value since peaking on 17 January this year. But after rebounding from…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

As the stock market recovery stalls, should I wait to buy?

Has the stock market recovery run out of steam? If so, what does that mean for our writer's portfolio? Here…

Read more »

Diagonal chain made of zeros and ones. Cryptocurrency and mining.
Investing Articles

At 55p, is the Argo Blockchain (LON:ARB) share price too cheap to miss?

With a low P/E ratio and strong financial results, could the Bitcoin miner be good value for money?

Read more »

macro shot of computer monitor with FTSE 100 stock market data in trading application
Investing Articles

Here are 2 recession-proof FTSE stocks!

In the face of current economic uncertainty and fears of a looming recession, this Fool identifies two recession-proof FTSE stocks.

Read more »

British Pennies on a Pound Note
Investing Articles

Here is 1 penny stock primed to benefit from the construction boom!

Jabran Khan delves deeper into a penny stock that he believes could benefit from the construction boom, and explains why…

Read more »

Various denominations of notes in a pile
Investing Articles

Here is 1 top passive income stock to buy and hold!

Jabran Khan wants to boost his passive income stream through dividends and has identified this insurance giant as a way…

Read more »

Cheerful young businesspeople with laptop working in office
Investing Articles

These are the 5 worst ways to invest in stocks

It's all too easy to lose money when you don't really know how to invest in stocks. Here are the…

Read more »