There’s worse people for share pickers to look up and listen to than the so-called Sage of Omaha. Billionaire stocks guru Warren Buffett famously came up with the direction that we, as investors, should be “fearful when others are greedy and greedy when others are fearful.” That’s advice I’ve taken in the past couple of weeks.
Bunzl (LSE: BNZL) is a share that I’ve long admired and elected to stash the cash into following the share market washout that has enveloped the FTSE 100 in recent weeks. Right now, it remains 9% lower from the start of October, despite a slight uptick in buying interest.
The support services specialist offers a broad range of essential, everyday products and services to a vast number of industries, from hi-visibility vests for road-builders in California, to disposable gloves for food manufacturers in Turkey. And these multiple layers of diversification give it brilliant resilience — and the tools to keep growing earnings — despite the prospect of trouble in one or two sectors, or geographies.
Quietly going about its business
These defensive qualities have made Bunzl a go-to stock for investors seeking solid earnings growth year after year, and by extension share pickers seeking relentless dividend expansion. The company has lifted the annual payout for 25 years on the spin and, judging from fresh trading results released on Tuesday, it appears in great shape to keep this divine run going.
“Overall performance [remains] consistent with expectations at the time of the half year results announcement in August,” the Footsie firm said today, with revenues having risen 7% at constant exchange rates in the July-September quarter. Bunzl noted that organic growth clocked in at 4% and that acquisitions (net of disposals) contributed 3%.
In prior articles, I’ve lauded the company’s appetite for earnings-boosting acquisitions, and its success in integrating these into the broader business. And I’m also pleased to report that the business is not letting up on the M&A front as today, it also announced the takeover of Volk do Brasil, a major distributor of personal protection equipment in Latin America, for £41m.
An understated hero
Right now, Bunzl appears on course to meet City predictions that earnings will rise 5% in both 2018 and 2019, and to meet existing dividend forecasts, too.
Indeed, these positive profits predictions, along with its impressive cash generation — free cash flow remained broadly stable year-on-year at £181.6m as of June — mean that last year’s dividend of 46p per share is expected to march to 49.3p this year, before rising to 52.2p in 2019. As a consequence, yields stand at a healthy 2.2% and 2.4% for these respective years.
Clearly bigger yields can be found on the FTSE 100. But few firms from the index are better placed than Bunzl to keep growing payouts from now until long into the future.
One final thing. That aforementioned share price weakness leaves the stock dealing on an undemanding forward P/E multiple of 17.5 times. For a company of Bunzl’s proven quality, this makes it one of the best bargains around.