One can’t move these days for headlines proclaiming a recession is about to hit the UK. As such, I do think it’s worth having a least some of my money in shares that should be able to weather the economic storm better than most. All the better if they pay handsome dividends in the process! Here are two FTSE 100 stocks that catch the eye today.
Protecting my wealth
The war in Ukraine has been shocking to behold from a humanitarian perspective. Even so, the performance of the BAE System‘s (LSE: BA) share price does support the thesis that investing in a defence firm or two can offset damage done elsewhere in a portfolio. Recession or not, the world will always need protection from despots.
Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!
While there’s some choice available to me in this space, I’ve always liked the FTSE 100 giant for its income stream. Put simply, BAE has an excellent record of consistently increasing its bi-annual payouts. In fact, I’d say it’s long been one of the most reliable payers in the index.
So, what are the risks here? Well, there could be a period of profit-taking once the market (inevitably) recovers its confidence and investors’ penchant for growth stocks returns. A ceasefire in Eastern Europe could be another catalyst. Although a 3.4% dividend yield is more than adequate, I can also get a lot more income elsewhere in the FTSE 100 (albeit by arguably taking on more risk).
That said, I still rate BAE as a potential core holding for me in an income-focused portfolio. I wouldn’t necessarily expect more fireworks from the share price — a price-to-earnings (P/E) ratio of 15 already looks to be up to date with news. However, I’d argue that capital gains were never the priority here.
‘Essential’ FTSE 100 stock
Utility stocks are loved by many investors for their defensive properties. Regardless of what’s going on with the UK economy, we all need electricity, gas and clean running water. That’s why a FTSE 100 stock like United Utilities Group (LSE: UU) has some appeal.
United’s water and wastewater treatment works operate in the North West of England. It supplies 1.8bn litres every day, the majority of which comes from Cumbria and Wales. Interestingly, it’s the largest corporate landowner in England.
Again, no investment offers a nailed-on opportunity to make money. This could be particularly true for United as its stock already trades at 22 times forecast earnings. That’s despite a fairly sizeable fall in the share price recently.
The latter can be largely blamed on Chancellor Rishi Sunak’s announcement that energy companies would be hit with a 25% windfall tax. Investors may also fear that United could see some reduction in water usage as consumers attempt to trim costs.
On the flip side, the 4.7% yield offers some compensation in these troubled times. That’s clearly not enough to outpace inflation but it might provide some comfort. Like BAE, United also has an excellent record of growing its annual dividend year after year. If that doesn’t smack of ‘strong and stable’, I’m not sure what does.
And if I’m able to reinvest rather than spend these payouts, I stand to benefit even more from the ‘wealth-builder’ that is compound interest!
