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.
High-yielding defensive dividend stocks could be a great strategy in these uncertain times.
With global markets in turmoil as the coronavirus pandemic tightens its grip, turning to shares to generate income isn’t as simple as it used to be…
As the realities of ‘life under lockdown’ begin to bite, many of the stock market’s ‘go-to’ high-yielding companies have either taken an axe to their dividend pay-outs… or worse, opted to suspended them altogether – for the near-term at least.
With so many blue-chip and mid-cap companies scrambling to hoard cash right now, where are we income investors to turn for decent yields?
Fortunately, The Motley Fool is here to help…
Our analyst has unearthed what he believes could be a very attractive option for income- seeking investors – a company that, in his view, boasts a ‘reliably defensive’ business model, combined with a current forecast dividend yield of 4.2% to boot!*
But here’s the really exciting part…
This business even has form in riding out this kind of situation, too… having previously increased sales and profits back in 2008 and 2009 when the world was gripped in the deepest economic crisis since the Great Depression.
*Please be aware that dividends are variable and not guaranteed.
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.