As we head into June, most countries are beginning to exit lockdown. Investors are starting to look ahead with more confidence and stock markets are rising. But the reality is the outlook is still pretty uncertain. I’ve been searching for companies that should do well, even in a recession. Today, I want to tell you about a FTSE 250 share I rate as a strong buy.
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None of T&L’s employees have been furloughed during the coronavirus pandemic, and the firm hasn’t applied for any government loan schemes.
A 20-year dividend track record
Tate & Lyle doesn’t produce sugar anymore, only sweeteners and other ingredients. These are used in packaged foods, such as cakes, soups, soft drinks and much more. They help to provide qualities such as taste, “mouthfeel” and extended shelf lives.
Over the last 10 years, the firm has adapted to changing market conditions by scaling up this specialist ingredient business and reducing its exposure to less profitable bulk sweeteners and other commodities.
This successful evolution means this FTSE 250 share has maintained its excellent dividend record. Tate & Lyle’s payout hasn’t been cut for more than 20 years, during which it’s risen by 66%, to 29.6p per share.
A super FTSE 250 share
Tate & Lyle’s business is pretty dull, but it’s performed well during the coronavirus lockdown. The company says its Food & Beverage Solutions business performed well in April, as US and European consumers stocked up on supermarket provisions.
Although sales to the restaurant trade have suffered as a result of widespread closures, I think the overall impact of the pandemic on Tate & Lyle’s business should be fairly limited.
Looking at the numbers, its pre-tax profit rose by 4% to £331m during the year to 31 March. Adjusted earnings rose by 8%, to 57.8p per share, providing a good level of cover for the 29.6p dividend.
City analysts expect earnings to fall to 54p per share this year, but I don’t see this as a concern, given the bigger picture. I certainly don’t see any reason to expect a dividend cut.
A stock I’d buy and hold forever
Tate & Lyle is never going to be a higher-rated stock with explosive growth. But I think this is the kind of investment where slow and steady wins the race. This company has proven staying power and a long history of steady growth.
In my view, now could be a good time to buy this FTSE 250 share. Despite its strong performance, Tate & Lyle is trading well below the highs of 800p we saw in January.
At under 700p, the shares are trading on 12 times forecast earnings, with a dividend yield of 4.7%. I view the shares as a safe long-term buy.