I’m looking for the best FTSE stocks with defensive characteristics. One share I’d consider adding to my portfolio is Dignity Plc (LSE:DTY). Here’s why.
Funeral plan provider
Dignity is one of the UK’s largest providers of funeral services as well as pre-paid funeral plans. As I write, it owns and operates close to 800 funeral locations, including 46 crematoria in the UK.
The inevitability of death makes me think that Dignity has a unique defensive trait. I must note, though, that I am also not advocating taking any form of advantage of the departed, however.
Most FTSE shares have come under pressure in recent months due to macroeconomic and geopolitical issues. I view this as an opportunity to pick up cheap shares for my portfolio.
As I write, Dignity shares are trading for 554p. At this time last year, the shares were trading for 644p, which is a 13% decline over a 12-month period.
FTSE stocks have risks
Dignity has previously been accused of over-pricing by the Competitions and Markets Authority (CMA). When news of the scandal first broke, Dignity shares suffered, as did its reputation and it lost market share to competitors. Dignity resolved the issue and revised its pricing in line with market expectations.
In addition to the pricing scandal, Dignity could fall afoul of the CMA who are potentially looking at reviewing and reducing the price of funerals in the UK. This could affect the FTSE All-Share incumbent and its bottom line.
Why I like Dignity shares
Dignity has changed tack and decided to move with the times in its approach and how it operates on a day-to-day basis. In the past, Dignity used to sell its funeral services and plans through telephony partners. It has cancelled contracts with telephony partners and has placed an emphasis on selling through its branch network and more up-to-date marketing including social media and online. I believe this new approach could boost DTY’s performance.
There is a likelihood that demand for funeral services may fluctuate up or down but it will never cease totally. There will always be the requirement for such services. In my opinion, this offers DTY a defensive trait for its business going forward. I like FTSE stocks that have good defensive traits.
Dignity released preliminary full-year results last month. This was for the period ending 31 December 2021. I thought the results were positive. Although revenue dropped by 1%, profit rose by a healthy 12%. Earnings per share were also up, as was cash generation, to boost DTY’s balance sheet. Historically, Dignity has seen revenue and profit remain at consistent levels for the past four years. I do understand past performance is not a guarantee of the future, however.
Overall I like the look of Dignity and I’d buy and hold the shares for my holdings. As well as a key defensive attribute, it possesses a decent track record of performance and most importantly, a good market share of a market that will never truly cease to exist.