With dividends now looking increasingly precarious during this market crash as companies suspend their payouts and issue profit warnings, investors may wish to focus on shares that are cheap but reliable.
Keep on building
FTSE 100-listed housebuilder Barratt Developments (LSE: BDEV), like other listed companies in its sector, shows signs of its shares being very good value. The P/E is below six following the recent market sell-off. The shares have fallen by over 50% in just the last month.
The reasons for this, I think, are more about panic than a fundamental change in the housing market. Yes, for a while there will be less house-buying because people won’t be attending viewings and probably won’t want to take on mortgages when their jobs are potentially insecure.
Overall though, the housing market has a demand that outstrips supply. This is good for the shareholders of housebuilding companies. Before coronavirus, the government wanted to level up the country, and one way to do that is to build. Once coronavirus passes, even if that takes a year or longer to occur, housebuilders will be primed to benefit.
Investing in builder shares at these great values, especially in Barratt Developments, to me seems like a prudent move for any long-term investor.
Demand for medicines will persist
No matter what happens in the economy, there will be a need for vital medicines. This is why, especially at the most challenging time for shares, those of GlaxoSmithKline (LSE: GSK) should hold up particularly well. Indeed from the whole FTSE 100 over the last month, GSK is the 12th best performer. That can also be seen with its industry peer AstraZeneca, which has performed just a little better (or maybe that should that be less badly!)
GSK’s shares have still lost value, but 99 of the 100 shares on the elite index have over the course of the last month. The point is GSK’s are losing less value because they are defensive.
At a time when there’s a real risk that indebted companies and those with no customers might go to the wall, GSK isn’t going to be one of them. Its customers will keep buying its products and it can keep spending on research and development to create new blockbuster drugs that will help drive future sales.
With a PE of 11, I think the shares look cheap. And the dividend, which has been held flat for consecutive years, is more likely than most to avoid a cut or suspension. Last year’s dividend cover was 1.55x and it has been growing year-on-year.
Overall, GSK is likely to be one of only a handful of companies that will be less affected by coronavirus and with the shares now much cheaper, they look good value to me.