A couple of weeks ago, I discussed how private investors could learn to love market volatility by recognising the importance of building a diversified portfolio and buying shares in a number of large, resilient companies to sit alongside their more cyclical holdings.
Events over the last few days have perhaps underlined how essential this is. So, let’s consider three stalwarts and ask whether they should form a core part of your portfolio for the difficult period we’ve now entered.
Powering ahead
National Grid (LSE: NG) is commonly regarded as one of the most boring constituents of the FTSE 100. The beauty of owning shares in the £37bn cap is that its monopoly over electricity provision means its share price tends to suffer less than other companies (and the main index) during periods of market panic. Need proof? Just look at its performance since Britain’s voted to leave the EU. It’s increased in the two days of trading since the result was announced.
While some investors may be more concerned with protecting their capital right now, it can’t be denied that the electricity network provider also offers one of the safest yields in the FTSE 100. At just under 4.5% and covered by earnings, National Grid is a company to raise income investors’ spirits.
Some may quibble that a price-to-earnings (P/E) ratio of just over 16 makes the shares a bit expensive, particularly as our banks, airlines and housebuilders are now even cheaper to buy. While this may be true, it’s also a fact that no one knows how low the latter will fall. Rather than attempt to “catch a falling knife“, risk-averse investors may prefer to pay a little more for greater security.
Defensive demon
Unilever (LSE: ULVR) is, of course, a multinational consumer goods giant and not dependent solely on Europe for its profits. While UK politicians fret, this £93bn cap carries on selling Lynx deodorant, jars of Marmite and packs of Persil to the two billion people that use its products every day. This will continue regardless of what negotiations now happen between Britain and the 27 remaining members of the EU.
Given this, the performance of Unilver’s share price since last Friday is unsurprising. They’re up from 3,175p on the eve of the result to 3,365p today as investors dump their more speculative holdings for the relative sanctuary offered by the company.
While its 2.8% dividend yield looks fairly average alongside the payouts offered by National Grid, it is arguably just as secure. And when world markets do settle down, Unilever has the global reach to benefit.
Dividend champion
The FTSE250 index slumped dramatically on Friday and Monda,y due to a number of its companies being heavily dependent on earnings from the UK or Europe. This is not to say, however, that the index is devoid of resilient companies with larger international exposure. Halma (LSE:ULVR) is an example. The £4bn company’s products detect hazards, look after the environment, protect life and improve health. Thanks to growing health and safety legislation, the company’s earnings are anything but cyclical.
Halma’s share price reacted to the recent period of panic with a slight stumble followed by a shrug of its shoulders. It’s now recovered to 941p. Before Friday’s result, it was at 965p. Investors may baulk at how expensive shares in the company are — a P/E of 35 — but I would argue that 37 consecutive years of dividend increases of 5% or more speaks for itself.