The coronavirus market crash has thrown up a unique opportunity. Quality defensive FTSE 100 shares are trading at much more affordable prices. So I’m saving cash I don’t need for my everyday bills and piling it into my Stocks and Shares ISA.
The smart money also knows a UK recession is coming. And defensive sectors like utilities and consumer staples are the best store of value in troubled times.
One caveat I will say before I start. This pair may not rise as fast as a rapidly appreciating market when the pandemic crisis is over.
But anyone gambling on risky stocks will have seen eye-watering 20% to 30% falls in their portfolio value since March. And the rally back to previous highs could be two years away from here.
So what these stocks will do is to protect your ISA wealth in the choppy, likely recessionary, environment ahead.
I think both should be part of a well-diversified portfolio packed with both high-earning growth stocks and stable, high-yield FTSE 100 dividend-payers.
As a defensive FTSE 100 utilities pick, there are few better options than this infrastructure operator.
No one can touch the 5.2% yield of National Grid (LSE:NG) in the UK because of its impenetrable economic moat, or competitive advantage.
Instead of digging for oil or natural gas, it owns the pipes and power lines that transmit gas and electricity into people’s homes. As such, its revenues are less affected by the collapsing price of oil, which has already badly hurt FTSE 100 energy giants like Royal Dutch Shell, BP and scores of smaller mining and minerals companies.
Investors burned by tanking share prices have already taken notice of National Grid’s defensive qualities. While many shares have plunged 30% or more since the start of 2020, NG shares are down by only single percentage points.
It has left open the decision of whether to pay its final dividend, but I’m not too concerned. National Grid has positives in spades, with a strong balance sheet and £5.5bn of undrawn bank facilities providing plenty of downturn cover.
Stay home, keep clean
In the consumer staples sector, Reckitt Benkiser, which sells household cleaning and hygiene products, seems an obvious choice. Especially in an era of hand-sanitiser price gouging and baby-wipe shortages. But it was unprofitable last year.
Instead, I’m choosing Unilever (LSE:ULVR). It’s the favourite FTSE 100 dividend share of Evenlode Investment Management, for one. That is about the most boring (in a good way) active stock picking fund you will ever find. It focuses on big, stable companies most likely to slowly improve dividends per share over many years.
With brands under its wing, such as Dove soap, Domestos bleach, Marmite spread and Magnum ice creams, you’ll find Unilever products on every supermarket and corner store shelf in Britain.
Like National Grid, the shares have lost less than 5% of their value since January 2020. As of mid-April you can pick up the shares on 18 times earnings for a 3.4% dividend yield. This is one to tuck away in your ISA and forget about. If you can hold for a few years, I have no doubt it will compound nicely and pay you back handsomely for your faith.
Tom Rodgers has no current position in the shares mentioned. The Motley Fool UK owns shares of and has recommended Unilever. 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.