After outstanding returns from global stock markets in 2019, 2020 and 2021, this year has been tougher for investors. As we enter 2022’s fifth month, the US S&P 500 index has lost 677 points since its record high on 3 January. This leaves the world’s most important stock index down 14% from its peak. Likewise, the tech-heavy Nasdaq Composite index is down 20.6% this calendar year and has crashed 23.3% from its all-time high of 22 November 2021. But good news for UK investors: the FTSE 100 index has actually climbed in 2022.
So far, the FTSE 100 is 2022’s safe haven
The UK’s blue-chip index has risen by almost 2.2% since 31 December 2021. This positions London as one of the world’s best-performing stock markets in this troubled year. What’s more, the Footsie has gained 9% over 12 months. Adding in, say, 4% for dividends increases this yearly return to 13%. This is highly respectable, given the weakness shown by foreign stock markets.
For me, one reason for the FTSE 100’s outperformance against its rivals over the past 12 months is that it was mispriced. Repeatedly in 2020-21, I wrote that I saw the Footsie as deeply undervalued, both in historical and geographical terms. The index’s relative strength of late makes me think that I might have been on the right track.
Four FTSE 100 stocks to shelter from storms
Despite the FTSE 100’s recent robustness, I still see deep value lurking within this index. Indeed, the share prices of many quality companies are trading well below 2021 highs. For example, here are four Footsie shares that I don’t own, but would gladly buy today for their defensive qualities and future earnings potential.
| Company | Sector | Share price (p) | 12-month change | Market value (£bn) | P/E | Earnings yield | Dividend yield | Dividend cover |
| Rio Tinto | Mining | 5,706.0 | -6.7% | 96.5 | 5.5 | 18.2% | 10.1% | 1.8 |
| Unilever | Consumer goods | 3,700.7 | -12.0% | 94.8 | 19.0 | 5.3% | 3.9% | 1.3 |
| Diageo | Consumer goods | 4,009.9 | 23.4% | 92.3 | 30.8 | 3.2% | 1.8% | 1.8 |
| British American Tobacco | Tobacco | 3,342.1 | 23.1% | 76.1 | 11.6 | 8.7% | 6.5% | 1.3 |
Why would I buy these four stocks?
The first thing I’d point out is that all four businesses are FTSE 100 super-heavyweights — powerhouses in their respective fields. The smallest is valued at over £76bn, while the largest is worth close to £100bn. Second, all four stocks pay dividends to shareholders — and I’m a big fan of these regular cash returns. Dividend yields range from a modest 1.8% a year to a mighty 10.1%, with the average yield across all four shares being 5.6% a year. That comfortably beats the FTSE 100’s cash yield of roughly 4% a year.
Third, all four FTSE 100 firms have simple, easily understood business models. Rio Tinto digs up and sells metals and minerals across the globe. Unilever sells hundreds of popular household brands to billions of consumers worldwide. Diageo is one of the world’s largest suppliers of alcoholic drinks. And British American Tobacco is a leading cigarette manufacturer.
Of course, each of these companies faces various growth hurdles, such as rising inflation and interest rates, China’s slowdown, and Covid-19 issues. And company dividends are by no means guaranteed. But I’d happily buy and hold these four FTSE 100 giants today!
