The FTSE 100 is down 25% in 2020, thanks to the Covid-19 pandemic, and there could be worse to come. But while everyone is panicking and selling, I’ve been trying to think of my top FTSE 100 shares to buy.
You could look for stocks that have fallen further than is justified and buy for recovery. Or seek shares that are resilient and have remained high. My three today cover both of those approaches.
All-time top FTSE 100 shares
So far in 2020, the BAE Systems (LSE: BA) share price has fallen only 5%, while FTSE 100 shares have lost an overall 25%. But BAE had put on a bit of a spurt in the first couple of months of the year. And since the coronavirus hit, the price is down 15%. That’s still better than the index.
With aviation essentially on hold, the aerospace business looks like it’s under a bit of stress. But BA’s work is very much long term, and I foresee no problems with its defence contracts.
Is it one of the best FTSE 100 shares for dividends? Well, BAE had proposed a 13.8p final payment for 2019, but has recently decided to defer a decision on it until half-time results on 30 July. The company says “it remains our intention to pay a dividend,” but the timing is uncertain now.
Whatever happens to the 2019 final dividend, I reckon BAE is still a long-term cash cow.
Are people turning to booze for comfort in these dark times? Well, the government has deemed off-licences to be sellers of essential goods. But the closure of bars and restaurants hasn’t helped Diageo (LSE: DGE).
It’s not with such a short-term outlook that I approach Diageo, which I rate as another of my favourite FTSE 100 shares right now. No, I’m looking at it as a long-term buy. And the recent dip has made its shares look more attractive than usual.
Diageo shares are down 19% year-to-date, and I see that as oversold. On Thursday, the company confirmed its interim dividend. But it’s decided to hold back on the second phase of its three-year capital return programme for the remainder of the current fiscal year.
Back in July 2019, Diageo had intended to return a total of £4.5bn to shareholders over three years. And while that’s been suspended for now, it does indicate another highly cash-generative company. I’d buy.
Bouncing FTSE 100 share
The British American Tobacco (LSE: BATS) share price did fall badly along with the rest. But it’s rebounded ahead of most, and is currently down 9% so far this year. I think that qualifies it as one of the best FTSE 100 shares in terms of resilience.
The company has been paying big dividends too, and forecasts suggest a 7.5% yield in 2020. And so far, there’s been no indication that the firm will join the dividend-cutting hordes.
You might prefer to avoid British American for ethical reasons, but there’s no doubt it’s a great long-term generator of cash. Tobacco might be going out of fashion, and British American shares have tumbled since mid-2017.
But profits just keep growing, and the shares now command a forward price-to-earnings of only around 8.5.
Judging it purely in financial terms, British American Tobacco remains one of the top FTSE 100 shares in my book. I expect growth plus dividends over the next few years.
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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended Diageo. 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.