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Is this one of the best UK shares to buy now? I think it might be and here’s why

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Over the past five years, FTSE Small Cap company Stock Spirits (LSE: STCK) has paid a generally rising shareholder dividend. And I think the firm’s position in the defensive alcoholic drinks sector helped it achieve that record. Stock Spirits produces branded spirits and liqueurs that are mainly sold in Central and Eastern Europe and Italy.

Why I see this as one of the best UK shares to buy now

The business model always makes me think of the giant branded alcoholic drinks supplier in the FTSE 100, Diageo. And today’s full-year results report demonstrates the resilience of the Stock Spirits business in the face of Covid-19. Just like Diageo, the enterprise appears to enjoy defensive qualities. And I think that’s encouraging because with its market capitalisation at just £486m compared to Diageo’s at just over £68bn, the company has plenty of room to grow.

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Stock Spirits headlined its report today with the statement: “A resilient performance in uncertain times with results ahead of expectations.” And when directors of any company declare that results beat their expectations, I think it’s time to take notice. Indeed, the share price is perky this morning. And ‘ahead of expectations’ announcements can sometimes lead to a period of outperformance from a share as it factors in improving trading in the underlying business.

The reporting period covers the 12 months to 30 September, which includes the worst economic conditions the pandemic has thrown at us, so far. But Stock Spirits excelled. Sales volumes increased by 1.8% compared to the prior year.  And that drove a 6.9% increase in revenue and an 8.5% jump in adjusted earnings per share. Meanwhile, net debt plunged by just over 59% to around £20m. And overall, the financial performance of the company has been robust.

Defensive growth potential

I’ve written about Stock Spirits several times over the past few years, often commenting on the defensive qualities of the business. And I’m pleased with how the enterprise performed in the recent stress test of the coronavirus crisis. Indeed, the stock leapt from its coronavirus lows of the spring. And at today’s 259p, it’s making highs well above its pre-coronavirus level in February near 220p.

And I think the strength in the share price underlines another important quality of the business – its growth potential. So, in Stock Spirits, I see an investment opportunity offering me the potential for defensive growth in dividend income and capital via a rising share price.

The directors emphasised their confidence in the outlook by increasing the total dividend for the year by 6.8%. They also declared a special dividend worth 11 cents (Stock Spirits reports in euros), which more than doubles the shareholder payment for the year. Meanwhile, based on the ordinary dividend and with the share price at 260p, the forward-looking dividend yield for the current trading year is just below 3.5%. I’d buy some of the shares for the long haul. 

A Top Share with Enormous Growth Potential

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Not only does this company enjoy a dominant market-leading position…

But its capital-light, highly scalable business model has previously helped it deliver consistently high sales, astounding near-70% margins, and rising shareholder returns … in fact, in 2019 it returned a whopping £150m+ to shareholders in dividends and buybacks!

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While COVID-19 may have thrown the company a curveball, management have acted swiftly to ensure this business is as well placed as it can be to ride out the current period of uncertainty… in fact, our analyst believes it should come roaring back to life, just as soon as normal economic activity resumes.

That’s why we think now could be the perfect time for you to start building your own stake in this exceptional business – especially given the shares look to be trading on a fairly undemanding valuation for the year to March 2021.

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Kevin Godbold has no position in any share 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.

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