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Is this the best FTSE 100 company to buy right now?

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Reckitt Benckiser (LSE: RB) released 2020 full-year results Wednesday. And the market appeared underwhelmed by the FTSE 100 giant. The share price picked up briefly in early trading, but it’s flat on the day, as I write. So, weak results then? Not that I can see.

In a year when so many top companies have been struggling, Reckitt Benckiser saw its revenue increase by 8.9%. With Covid-19 around, seeing hygiene products leading the way with a 15.6% surge isn’t surprising. On the negative side, the gain in revenue didn’t translate to any increase in profit. In fact, operating profit declined by 2% and the company’s adjusted earnings per share figure dropped by 6.3%.

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But I see two clearly bright results, especially in such a tough economic year for most FTSE 100 companies. Reckitt Benckiser saw its free cash flow increase by 42.3%. Net debt reduced by 17% too, and I’m immediately attracted to companies whose debt is moving in the right direction these days.

Always wary of debt

I’ve always been wary of investing in companies that carry high levels of debt. In good times, debt funding can be very effective. And if a company can borrow money at good rates, and get a better return on investing it than it costs to service the debt, it can gear up its profits nicely. But the past year has hammered home the risks of carrying debt into a downturn.

Sure, the downturn has been severe. But it’s the FTSE 100 companies heading into the crisis already shouldering high debt burdens that have suffered the worst. Reckitt Benckiser does carry debt, at a bit under £9bn. But that’s only approximately 1.5 times its annual revenue, and falls easily within my comfort zone as an investor.

Coupled with the perceived benefits of Reckitt Benckiser’s products during a pandemic, its strong liquidity will surely have provided significant share price support. If we look at the price chart, RB shares climbed during the first half of 2020, while the FTSE 100 in general crashed. Since then, the RB share price has fallen back, now on a 6.3% dip over 12 months. The index, meanwhile, has recovered to a relatively modest 10.6% loss. And that leads to another lesson I think the pandemic has reinforced.

FTSE 100 divergence

When anything happens, stock markets tend to overreact. Some FTSE 100 stocks plummeted as investors dumped them. And hindsight suggests the sell-off was overdone. Similarly, the so-called flight to safety pushed up the values of some shares beyond anything sustainable. For long-term investors, an overdone market crash can provide some great buying opportunities. But my question now is, should I buy Reckitt Benckiser for my 2021 ISA?

I might well do. What I want in a Stocks and Shares ISA is a balance. Yes, I want some growth opportunities. But I also want some safety. And I think the best time to buy safe stocks is when there’s no panic and the crowds haven’t pushed them up.

Over the past five years, Reckitt Benckiser is down 9%, and that’s enough for me to put RB on my ISA candidates list. The biggest downside for me though, is the firm’s relatively low dividend yields of only around 2.7%. And, right now, there are some more attractive FTSE 100 dividend yields out there. I’ll keep watching.

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Alan Oscroft 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.

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