Reckitt Benckiser (LSE: RB) (NASDAQOTH: RBGLY.US) is a stock that, to me, seems fairly simple.
It sells healthcare, cleaning and hygiene products (as well as having a sizeable pharmaceuticals division) and operates across the globe, with emerging markets being an area that offers significant potential as demand for the group’s products increases in tandem with economic development.
So, with all the discussion surrounding the Federal Reserve and whether it is the right time to begin the tapering of its $85 billion monthly purchases of bonds, I’m looking to go back to basics and invest in something that I understand. Furthermore, the US government shut down only serves to make me seek out simplicity to an even greater extent.
As a result, I’m bullish on Reckitt Benckiser and am considering adding it to my portfolio.
Indeed, there are three main reasons as to why I’m so optimistic about the group’s future prospects.
Firstly, as alluded to, the company has vast potential in emerging markets. Unlike other consumer-focused stocks, the products that Reckitt Benckiser offers are viewed by the developed world as necessities.
Things such as toilet cleaner, headache tablets and washing powder are all products that can be found in nearly every home in the developed world. So, as living standard improve in the developing world, it is logical to think that Reckitt Benckiser should be one of the first consumer-related stocks to benefit, since its products are likely to be demanded before other products which are arguably required to a lesser extent.
Secondly, Reckitt Benckiser has a beta of 0.85, meaning that it offers defensive qualities. So, if the Federal Reserve does go ahead with the tapering of its monthly bond purchases and this leads to significant falls in equity markets, then Reckitt Benckiser should (in theory) hold up better than the index.
Thirdly, dividends per share have grown in each of the last four years and are forecast to grow in each of the next two years. Although the shares yield a rather average 3.0%, dividends are forecast to grow by around 4.5% in each of the next two years; a rate that is likely to be ahead of inflation. Therefore, I still think that Reckitt Benckiser ticks the ‘yield box’ for income-seeking investors such as me.
So, keeping it simple with Reckitt Benckiser seems to be a good idea with all the uncertainty surrounding ‘taper talk’ and the US government shut down. Indeed, I’m optimistic about Reckitt Benckiser’s prospects in emerging markets, feel reassured by its relatively low beta and believe that its track record of dividend growth bodes well for future increases.
> Peter does not own shares in Reckitt Benckiser.