During the coronavirus crisis, I’ve become more conservative when selecting stocks and shares. Since March, I’ve focused almost exclusively on the corporate giants: FTSE 100 members.
FTSE 100 bargains still abound
Though the FTSE 100 has risen around a quarter (actually 24%) since its 23 March low, I’m unconvinced that the worst is over. I keep worrying about these four problems:
1. The economy. Will the recovery be V-shaped or shallow?
2. Politics. Will world leaders (Trump!) throw a spanner in the stock market’s works?
3. Trade. How will the US-China showdown pan out?
4. Earnings. Strong companies will grow, the weak will struggle, and the weakest will die.
Long term, the market is a weighing machine
Though I worry about these issues, I know that #4 is the most important factor for long-term investing. As billionaire Warren Buffett remarked in 1974, “In the short run, [the market] is a voting machine; in the long run, it’s a weighing machine.”
Hence, my definition of great companies are those which increase their earnings strongly over time. There will be ups and downs, but much higher earnings 10 and 20 years from now would be my goal.
Another ‘boring’ FTSE 100 dividend
American satirist Mark Twain quipped that a mine is “a hole in the ground owned by a liar.” While that was true during the Gold Rush, BHP is a world-leading resources company, extracting, processing and selling minerals, oil and gas worldwide.
When it comes to earnings and dividends, big is beautiful, and you don’t get much bigger. Based in Melbourne and jointly listed in Australia and the UK, BHP is a £90bn colossus employing 72,000 people across the globe. Here are BHP’s fundamentals:
Share price, 1,635p; 12-month price change, -8.4%; price-to-earnings ratio (P/E), 10.5; dividend yield, 7.07%; and dividend cover, 1.34 times.
As you can see, after the steepest stock-market crash in history, BHP’s share price is down a mere 8.4% in 12 months. It has ranged between 940p on 12 March (the buying opportunity of a lifetime) and 2,079p last July.
BHP shares trade on slightly over 10 times annual earnings and offer a tidy dividend yield of nearly 7.1%. Good news: this dividend is well covered by earnings, so it’s solid and has scope for growth.
Its last dividend of $0.65 was paid on 24 March, at the height of the market convulsions. Also, this FTSE 100 firm properly looks after its owners, with its cash dividend rising steeply every year since the lows of 2016. This shows the sheer financial muscle of this literally ‘boring’ company.
In short, reinvesting that annual 7.1% yield into more shares will almost double your money in 10 years (all else being equal). What’s not to like?
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.
Cliffdarcy 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.