I know I’m often guilty of focusing on the better-known FTSE 100 stocks when looking to add to my holdings. That said, there are plenty of other quality businesses to consider too. One I want to take a closer look at is Smiths Group (LSE: SMIN).
FTSE 100 stocks struggle but Smiths performs well
Smiths has over 170 years of engineering expertise, predominantly in the defence and aerospace sectors.
So what’s happening with Smith shares? As I write, they’re trading for 1,628p. At this time last year, the shares were trading for 1,477p, which is a 10% increase over a 12-month period.
I’m conscious that many FTSE 100 stocks have suffered during this same period due to macroeconomic volatility so Smith’s share price performance is pleasing.
The bull and bear case
What drew my attention to Smiths recently were its full-year results released earlier this week for the 12 months ended 31 July 2023. I found them to be excellent. The business said it had record revenue growth, 18% higher than last year. In addition to this, operating profit soared 20% higher than last year and the business returned more than £350m to investors through a boosted dividend, 5% higher than the previous year, and a share buyback scheme.
In addition to this, my research showed me that Smiths has a good track record of performance. Since the pandemic, it has grown revenue and profit each year. However, I’m aware that past performance is not a guarantee of the future.
The firm’s investor returns policy looks enticing to me, especially the recent announcement of a completed share buyback scheme and bolstered dividend. This is at a time when many FTSE 100 stocks are cutting or freezing dividends. Smiths current dividend yield stands at 2.5%. This may not be the highest, but I’m more interested in consistent, stable dividends. However, I do understand dividends are never guaranteed.
Away from the bull case, I must note a couple of issues that could impact Smiths’ investment viability. Although I’m a fan of businesses completing acquisitions for growth, like Smiths has been doing for a long time, there’s always a risk these don’t work out. When this happens, it can be costly to dispose of a business. Investor sentiment, performance, and payout could take a hit.
Another issue for Smiths is the fact that there have been many supply chain issues in recent times globally. This could be particularly problematic for the business, with its products and reach. This could have a material impact on delivering its products to its customers, in turn, hindering performance and returns.
My verdict
To conclude, I like the look of Smiths and when I next have some cash to buy some shares, I’ll add some to my holdings.
It’s easy to get caught up in the fanfare and news cycle of blue-chip stocks with a household name. Smiths may not be that, but it looks like a good stock to buy, in my opinion and one investors should consider. It has a good track record, a solid balance sheet, and rewards its shareholders too.
