With only a little over a month to go until the 31 October Brexit deadline, and the UK still unable to agree a withdrawal agreement with the EU, the chances of a no-deal Brexit are increasing.
This is rather concerning. Economic growth in the UK is already anaemic, and a no-deal Brexit could potentially make things worse. Indeed, according to the Organisation for Economic Co-operation and Development (OECD), a no-deal scenario could see the UK enter a recession next year, with economic growth impacted until at least 2022.
Given the potential ramifications of a no-deal Brexit, now could be a good time to think about protecting your investment portfolio. With that in mind, here’s a look at one ‘recession-proof’ FTSE 100 dividend stock I think could offer an element of protection from a hard exit.
Consumer goods champion Reckitt Benckiser (LSE: RB) – which owns a world-class portfolio of health and hygiene brands including Nurofen, Durex, Dettol, Mortein, and Cillit Bang – is the perfect stock to own in the event of a UK recession, in my view. I say this for a number of reasons.
For starters, the group’s products are pretty much recession-proof. While consumers may cut back on non-essential items such as new clothes, shoes, and accessories during an economic downturn, they’re unlikely to cut back on basics such as painkillers and cleaning products. As such, Reckitt should be able to generate consistent revenues no matter what happens to the economy.
Secondly, Reckitt is a global company, selling its products in nearly 200 countries across the world. So, what happens to the UK economy doesn’t matter too much to the company. Additionally, because the group generates a substantial proportion of its earnings internationally, it’s likely to benefit if the pound falls, as its international earnings will be worth more in sterling terms.
Finally, Reckitt Benckiser has a number of ‘quality’ attributes. This means it could provide some protection against market volatility, as investors tend to gravitate towards high-quality stocks during periods of uncertainty. For example, the company is highly profitable, with strong operating margins and a high return on equity. It also has a fantastic dividend-growth track record and has increased its payout significantly over the last decade (currently the dividend yield is around 2.6%). In addition, the power of its high-profile brands, which are trusted by consumers, provides the company with a strong competitive advantage.
Turning to the valuation, I believe Reckitt shares are attractively priced right now. With analysts forecasting earnings per share of 345p for this year, the forward-looking P/E ratio is 19.3. That’s higher than the average FTSE 100 P/E ratio, however, when you consider the company’s quality attributes and the recession-proof nature of its products, I think the stock is worth a premium.
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Edward Sheldon owns shares in Reckitt Benckiser. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.