A FTSE 100 stock I’d buy now

Bunzl (LON:BNZL) is a dividend-paying FTSE 100 stock with growth potential. It could be a good addition to a Stocks and Shares ISA.

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FTSE 100 stock Bunzl (LSE:BNZL) is a long-established supplier of food packaging and safety equipment to businesses in Europe and the US. It’s a multinational distribution and outsourcing company that was resilient throughout 2020 and is on an acquisition path to scale.

Bunzl’s rising revenues

Bunzl’s revenues rose over 9% in 2020 and profits were up 18%. The £7.6bn company has a price-to-earnings ratio of 18 and earnings per share are 128p.

This FTSE 100 company is a major link in the global supply chain, and because of this it saw a rise in demand for its products in health, safety, cleaning, and hygiene. Its foodservice and retail side declined thanks to the lockdowns, but the gains elsewhere more than made up for this.

Bunzl enjoyed a strong 2020 as Covid-19 led to a hike in sales of Personal Protective Equipment (PPE). But analysts expect revenues to decline this year. That’s because its PPE returns higher profits than sales of food packaging and retail or restaurant supplies. Nevertheless, projected growth is likely to be slow but steady into 2022. 

Bunzl is committed to its dividend payment, which now has 28 years of consecutive dividend per share growth. And that’s despite pausing it when Covid-19 hit, before reinstating it later in the year. At 54.1p, it gives shareholders a current dividend yield of 2.2%.

Scaling through acquisitions

It’s also a company big on acquisitions. In the past 16 years it’s made more than 170 acquisitions, helping it become the global behemoth it is today.

Year-to-date, it’s continued in this vein buying another three companies. These are in the UK, Canada and the Netherlands. With each generating 2020 revenues of between £11m and £20m, each shows signs of growth and should help Bunzl distribute even more health, hygiene and disposable foodservice products.

With plenty of access to capital, Bunzl appears to be in a dominant position to pounce again when the time is right.

A lot to like about this FTSE 100 stock

I like the size of this business and that it sells products that are not going out of fashion. The pandemic is driving a rise in health and hygiene awareness. Therefore, I imagine the demand for PPE is likely to continue to some extent. I also think the current economic environment should throw up some takeover targets at a good price.

However, it does face some risks to its business. Last year, foreign exchange had a 1% to 2% adverse impact on Bunzl’s reported results. Inflation is another risk, as would any of its customers going under, which would creates financial losses for the company. There’s also the global environmental shift in awareness, which may lead food services to cut back on single-use plastics, but Bunzl is already helping customers shift to more sustainable alternatives.

I think there’s a lot to like about Bunzl, and I’d happily add this FTSE 100 stock to my Stocks and Shares ISA.

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.

Kirsteen has no position in any of the shares mentioned. The Motley Fool UK has recommended Bunzl. 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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