Defensive shares: I’d consider investing in these 2 FTSE 100 stocks

In a turbulent market, buying defensive shares could be a great strategy to utilise. These stocks might be a good bet for the long-term investor!

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

With the coronavirus outbreak still causing uncertainty in the market, now could be an excellent time to buy defensive shares.

The market is likely to remain turbulent for some time. Financial analysts are still trying to determine the impact that the virus will have on the global economy. With more uncertainty on the horizon, I think buying defensive stocks could be a great strategy to weather the storm.

Defensive dividend share

Unlike other FTSE 100 businesses, energy company SSE (LSE: SSE) is committed to its dividend. In a recent trading update, SSE announced its board would be recommending a full-year dividend of 80p per share.

If the business maintains its dividend, I believe income investors who might be considering selling their positions in Shell or BT could seek out SSE shares.

The business acknowledges that there is a possibility that the economic fallout of the coronavirus outbreak may harm its results. It is a situation that the company is monitoring closely, but “has not so far had any material impact on SSE’s financial results for 2019/20”. As a clean infrastructure business, SSE might avoid the worst of the economic damage caused by the virus, unlike other industries.

As the demand for cleaner energy increases, I would expect this to have a positive impact on SSE’s revenue growth and profitability over the long term. This outlook will please buyers of defensive shares and growth investors alike.

SSE shares are currently trading with a prospective dividend yield of 7.5%. The business hopes to increase its dividend payments in the coming years to at least the rate of inflation. With SSE’s generous dividend and defensive nature, this could be a great share to buy and hold.

British American Tobacco

Tobacco stocks have been out of favour with investors for some time, due to overall consumption declining in many places around the world. Of course, the volume of cigarettes sold will probably continue to decline in the future. So far, tobacco companies have managed this reduction in volume by increasing prices.

However, in a recent update, British American Tobacco (LSE: BATS) said it had a strong start to the year, with volumes increasing by 0.4%. Despite the ongoing uncertainties surrounding the impact of coronavirus, the company is committed to its high single figure earnings growth target for 2020. This will please buyers of defensive shares, who are on the lookout for stable earnings in times of economic uncertainty.

Despite this, its share price is down by 6% in the year-to-date. Consequently, the shares have a price-to-earnings ratio of 10.

In the future, BATs plans to increase margins further and to convert 90% of adjusted profit into operating cash flow. The group is conscious that customers will move away from cigarette products. It has an ambitious aim of reaching £5bn of revenue in its alternative tobacco and nicotine products.

With the slump in its share price and defensive qualities, now could be a great time to invest in the company.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

T Sligo has no position in any of the shares mentioned. 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.

More on Investing Articles

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »