Shares in Halma (LSE:HLMA) are down around 40% since the beginning of the year. As an investor looking to buy shares in quality companies at good prices, I think that Halma might be the best FTSE 100 stock to buy right now for my portfolio.
Warren Buffett says that risk comes from not knowing what you’re doing and I think that Halma’s business is very complicated. But there are five reasons why I’m looking at Halma as the best opportunity in the FTSE 100 at the moment.
Cash generation
The first – and most important – reason is that Halma is a really excellent business when it comes to generating cash. At the end of the day, a business being able to generate cash for shareholders is what matters to me most.
Halma is extremely impressive in this regard. The company has £194m in fixed assets and generates just under £279m in operating income.
That’s a return on fixed assets of just under 144%. For context, Halma’s return here stacks up impressively against Google (74.5%), Meta (62.75%), and Starbucks (33.24%).
Scale
Halma’s businesses operate in highly specialised industries. That makes it difficult to understand, but it also brings an important advantage.
Operating in niche markets means that Halma’s businesses have few competitors. This protects the company’s impressive cash generation capacity.
Disrupting a dominant player in a small sector, such as Halma, would be expensive and ultimately unrewarding. As a result, Halma’s operations are protected by high barriers to entry for competitors.
Decentralised culture
One of the keys to Warren Buffett’s success at Berkshire Hathaway is its decentralised culture. Individual subsidiaries make their own decisions, rather than taking orders from a central office.
Halma is organised in a similar way. Its businesses are separate from one another and make their own decisions, empowering their management and encouraging an entrepreneurial spirit.
In my view, the structure of Halma’s business model is another strength of the company.
Financial position
Halma also has an impressive financial position. Its capital structure looks good to me, with around £713m in cash and £794m in total liabilities on its balance sheet, I think that it’s highly unlikely that the company will have any bankruptcy problems.
The organisation is also well in control of its debt. At the moment, Halma’s interest payments on its debt account for less than 3% of its operating income, which tells me that the company is unlikely to have any problems around its debt.
Lastly, the company has good financial liquidity. The company has twice as much cash as it had in 2019, which should allow it to respond well to opportunities that it sees in the future.
Increasing dividend
The final reason I think Halma shares might be a great investment for me is its dividend. The company is a dividend aristocrat and has been increasing its payouts to shareholders for the last 43 years.
By itself, an increasing dividend isn’t always a sure indicator of a good investment opportunity. But I think that Halma’s steady increases show stability over time, which makes the company attractive to me as an investor.