Have some spare pounds rattling around in your pocket? Well as 2019 draws to a close, I reckon buying classic defensive shares ahead of what threatens to be a turbulent pre-Christmas period and a challenging start to the new year is a great idea.
The defence sector is one such traditional safe haven in challenging macroeconomic and geopolitical times like these, and I think Avon Rubber (LSE: AVON) could be a wise buy today.
So what do market makers need to worry about in the weeks ahead? Well first up, we have the UK general election, a scenario which could throw more petrol on the already-volatile Brexit fire. Then we have a fast-moving presidential impeachment process that threatens to explode before Christmas.
We also have rising trade tensions between the US and China to consider too, as just last night President Trump threatened to “raise the tariffs even higher” should lawmakers fail to sign off on a deal.
This particular issue could indeed become more problematic should the commander-in-chief decide it serves a handy distraction from Democratic attempts to remove him from the Oval Office.
Firing on all cylinders
That’s not to say Avon Rubber isn’t a brilliant buy on its own merits however, as fresh trading results today showed. Revenues and adjusted profits rose 8% and 15%, respectively, in the fiscal year ending September, to £179.3m and £31.4m in a result that beat all prior expectations.
The massive investment Avon has made in developing its range of market-leading face protectors is clearly paying off handsomely, allowing it to win an increasing amount of business from customers outside its traditional markets of the US and UK.
It clocked up £181.9m worth of orders in the last financial period, up 5% year-on-year. And a closing order book of £40.4m (up 7%) gives it confidence entering the new year.
So strong has trading been of late at the small-cap that it kept its handsome record of dividend increases going too. The 16.02p per share annual payout for fiscal 2018 was hiked to 20.83p in the year just passed, representing a meaty 30%. Quite an impressive rise given recent signs of slowing dividend growth across global stock markets.
No doubt Avon’s robust balance sheet encouraged it to supercharge the shareholder reward too. As of September, the defence darling had £48.3m worth of net cash on the books, up £1.8m from 12 months earlier.
More to come!
What’s more, City analysts expect another chunky yearly increase in financial 2020, City consensus suggestive of a 27.1p per share dividend. Forget about a consequent 1.3% I say. It might not be the biggest, but given the likelihood that shareholder payouts will keep exploding, for long-term income investors Avon’s case is quite compelling.
Today’s update caused its share price to surge to fresh record peaks above £21 per share, a rise which takes total gains since the start of 2019 to a whopping 67%. This leaves the business trading on a chunky forward P/E ratio of 23.4 times, sure, but this is a small price to pay given the defence star’s exceptional momentum. It’s a brilliant buy, in my opinion.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Avon Rubber. 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.