It can hardly be argued that the weather in Great Britain is infamous for its unpredictability. The same might be said for our economy, especially in recent years. So what UK-listed stocks might British investors want to seek out during volatility?
Diageo
What it does: Diageo is one of the world’s leading suppliers of alcoholic drinks, with top brands in the gin, vodka, whisky and stout markets.
By Cliff D’Arcy. As I write, currently trading at 2,819.5p, Diageo (LSE:DGE) shares have dived 23.3% in the last year. Also, they are 12.5% lower over five years.
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This has lowered the group’s market value to £62.6bn. However, these figures exclude cash dividends, which Diageo has grown consistently over decades.
Currently, Diageo’s trailing cash yield is 2.9% a year – below the FTSE 100’s 4% yearly dividend yield. But 2024’s interim dividend was 4% above 2023’s, plus analysts expect this growth to continue, as it has done for many years.
Few companies are immune to financial downturns, stock-market crashes and recessions. But history has shown me that financially strong FTSE 100 firms with powerful, established brands (such as Diageo) do better than most.
Finally, I view Diageo stock as undervalued today. Therefore, my wife and I will keep tight hold of our shares for their dividends and potential capital gains!
Cliff D’Arcy has an economic interest in Diageo shares.
National Grid
What it does: National Grid owns and operates the electricity transmission network in England and Wales.
By Charlie Carman. National Grid (LSE:NG.) is a defensive stock worth considering for tricky times.
Electricity demand is fairly constant throughout the economic cycle and, as a regulated monopoly, the utility giant doesn’t face competition risks like most companies. That’s an attractive quality in a recession.
National Grid also has a marvellous dividend history. Distributions haven’t been cut since 1996 and the group’s progressive policy targets annual payout growth in line with CPIH inflation.
One cause for concern is the balance sheet. Net debt now stands at £43.9bn. This could spell trouble for the dividend, especially since cover is low at 1.2 times earnings.
However, National Grid has a high degree of regulatory protection. Accordingly, I don’t see its liabilities as an existential threat, even if the dividend comes under pressure.
Still, payouts weren’t cut in 2008 or during the pandemic, so I’m optimistic the company could take the next crisis in its stride.
Charlie Carman does not own shares in National Grid.
Nichols
What it does: Family-owned Nichols makes Vimto and a range of other soft drinks. This £350m business is listed on London’s AIM market.
By Roland Head. Branded soft drinks are usually regular repeat purchases. Nichols (LSE: NICL) delivered reliable results for many years prior to the pandemic, with operating profit rising from £17.8m in 2014 to £32.4m in 2019.
Sales slumped when Covid-19 lockdowns caused out-of-home sales to collapse. However, changes made to the business since then look smart to me. I think Nichols is building back stronger.
Long term, there’s a risk that Vimto could fall out of fashion. But there doesn’t seem to be any sign of this yet. Nichols’ first-quarter results showed rising sales volumes in the UK and highlighted growth opportunities in the Middle East – an important market for the firm.
A record net cash position of £73m provides further reassurance for me.
Nichols’ share price remains well below its historic highs. The shares do not look too expensive to me. I see this as a stock to tuck away for the future.
Roland Head does not own shares in Nichols.
