One FTSE stock I believe has defensive traits and that could provide stable returns in the long term is Treatt (LSE:TET). Let’s take a closer look to see if it could be a good stock to buy for my holdings.
Flavour of the month
As a quick introduction, Treatt is a chemical company that specialises in creating and selling natural extracts and ingredients for foodstuff, beverage, fragrance, and consumer goods markets. It has a global footprint with bases in the UK, US, and China.
So what’s happening with Treatt shares currently? Well, as I write, they’re trading for 754p. At this time last year, the stock was trading for 1,154p, which is a 35% drop over a 12-month period.
I believe Treatt shares have fallen due to the macroeconomic headwinds and the recent stock market correction (more on that later). It is worth noting that many stocks have suffered a similar fate recently.
FTSE stocks have risks
The biggest issue I have with Treatt shares currently is the headwinds mentioned above. Soaring inflation, the rising cost of raw materials, and the global supply chain crisis are having a material impact on many businesses. In Treatt’s case, these issues can affect the cost of its ingredients and squeeze profit margins. Less profit means less to return to shareholders.
Furthermore, the supply chain issues could affect Treatt’s ability to fulfil orders. This is something I will keep an eye on, as if it is unable to fulfil orders it could negatively affect sales and performance, which underpin returns.
The bull case and what I’m doing now
I believe Treatt has defensive traits as it provides vital components in the food manufacturing process. Food is an essential item, even in times of economic uncertainty and the current, well-documented cost-of-living crisis. After all, no matter the outlook, we all need to eat. Stocks linked to the production of food are therefore defensive, in my opinion.
So what about Treatt’s performance? I do understand that past performance is not a guarantee of the future. Looking back, I can see consistent growth of revenue and profit in the past four years. Due to the pandemic, 2020 levels dropped but have bounced back in 2021 to exceed pre-pandemic performance.
Positive performance underpins dividend payments that would boost my passive income stream. Treatt shares currently have a dividend yield of 1%. It is worth mentioning that dividends can be cancelled at the discretion of the business at any time, however.
Finally, I noticed that insiders own Treatt shares. I usually find this extremely positive. Those running the business are best placed to know if it will succeed. If they are willing to part with their own cash and believe they could secure returns, this helps me believe I could do the same.
Overall, I believe Treatt could be a good FTSE stock to add to my holdings. Although the shares have come under pressure recently, I expect them to bounce back. I believe current headwinds are shorter term issues, and I invest for the long term. I would add the shares to my holdings and keep hold of them for a long time.
