The countdown has begun!
In just one week, the US election will take place — an event that could send ripples through stock markets the world over.
It looks like a close race but no matter who wins, market volatility will be the likely outcome.
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With a large portion of UK revenue coming from abroad, we will be no stranger to the effects. No doubt, the most cunning of Wall Street investors have some ideas of how to leverage the election in their favour. Events like these can offer up lucrative investment opportunities — for those with an appetite for risk.
Personally, I’d rather play it safe.
As an amateur sailor, I’m particularly fond of the saying ‘any port in a storm’. When things get rough, get to safety! And that’s exactly what I plan to do this week.
Rather than try to second-guess the market, I’m putting my money where I know it’s (relatively) safe. That’s right, in defensive stocks — the safety blanket of the risk-averse investor.
These are two of my favourites at the moment.
British American Tobacco
As one of the world’s largest tobacco companies, British American Tobacco (LSE: BATS) tends to enjoy consistent demand regardless of economic conditions. Its profits stem from 180 countries, helping fund dividends and develop new products.
The 8.8% dividend yield is certainly one of its more attractive elements but I like its growth prospects too. Despite operating in a heavily regulated and controversial industry, it’s managed to adapt its business effectively. The transition to next-gen lines of less harmful tobacco products is doing well, accounting for 18% of revenue. It aims to increase this to 50% by 2035.
Still, there’s no denying that tobacco stocks carry inherent risks, including exposure to regulatory changes, health concerns and potential legal liabilities.
According to the firm, BATS is committed to a smokeless future and has outlined an ESG roadmap. This includes specific targets for climate action, biodiversity conservation, gender diversity, and ethical business practices.
GSK
GSK (LSE: GSK) has long been one of the most reliable and trusted companies on the FTSE 100. No wonder it’s often a company of choice for defensive investors. As an income-focused stock, its share price has remained quite stable, mostly trading between £13 and £17 for the past 20 years.
The multinational pharmaceutical and biotechnology firm was formed in 2000 through the merger of Glaxo Wellcome and SmithKline Beecham. The original name, GlaxoSmithKline, was eventually shortened to GSK in 2022. It demerged its consumer healthcare division the same year, forming the company Haleon.
Like many pharma companies, GSK is at risk of legal action related to adverse reactions to its drugs. Currently, it faces a potential billion-dollar lawsuit related to its heartburn drug Zantac. GSK claims there’s no merit in the suit.
Although its 4.4% yield is only half that of British American Tobacco, it has a good history of paying and increasing dividends. For decades, it was considered a Dividend Aristocrat but recent economic troubles forced a 27% dividend cut in 2022. However, with economic conditions improving, I expect it will do its best to reverse the reduction.
