Bunzl is the largest value-added distributor in the world in its target markets with operations throughout the world. Some of its most prominent products include packaging and general cleaning products such as disposable liners and gloves.

As I write, Bunzl shares are trading for 3,068p. At this time last year, the shares were trading for 2,479p, which means the shares have returned 24% over a 12-month period.

A FTSE 100 stock with risks

Bunzl saw profit levels drop due to Covid-19 as sales slowed during the height of the pandemic. The virus has not disappeared and restrictions in China, as well as other parts of the world, could have a knock-on effect for Bunzl’s progress and performance. If profit levels are affected once more, shareholder returns could be affected as well.

Rising costs attributed to macroeconomic factors such as soaring inflation is putting pressure on margins for firms like Bunzl. These profit margins being squeezed could affect the bottom line, and in turn shareholder returns. In addition to this, the ongoing supply chain crisis could also hamper sales too. It is worth noting Bunzl is not alone in suffering from these issues. Many other FTSE 100 stocks face similar headwinds.

Why I like Bunzl shares

Bunzl has a good historic track record of performance. I can see revenue has increased year on year for the past four years. I do understand past performance is not a guarantee of the future, however.

Coming up to date, Bunzl released its annual financial report for the year ended 31 December 2021 just last month. The results made for excellent reading, in my opinion. Revenue and profit increased by 7% and 2.8%, respectively, compared to 2020 levels. Net cash increased and a final dividend of 57p per share was declared, which is 5% increase from last year.

Speaking of dividends, Bunzl is generally viewed as a good FTSE 100 dividend stock. Since 2004, Bunzl has returned just under £2bn in dividends. Bunzl shares could help me, as a passive income seeker, and boost my passive income stream.

Finally, Bunzl is a business that looks to grow organically and through acquisitions too. I like when a business is able to buy complementary businesses to enhance its own offering. This shows ambition, a plan, and willingness to grow. If a business is growing, I’d expect to see my returns grow too.

My verdict

At current levels, Bunzl shares sport a price-to-earnings ratio of just over 22, which is higher than the FTSE 100 average of 15. Bunzl shares are coveted by investors and I believe this is clear based on its premium price.

I’d happily add Bunzl shares to my holdings but wish I had done so sooner. If there were a stock market correction, a bit like the one we saw a couple of months ago when many FTSE 100 stocks dipped, I’d snap up shares in Bunzl at a cheaper price.

A FTSE 100 commodities firm

The first company I’m looking at for a long-term buy-and-hold strategy is Anglo American (LSE:AAL). This business mines and produces a number of commodities, including copper, platinum group metals (PGMs), iron ore, and coal. It operates over three continents.

Between the 2017 and 2021 calendar years, revenue increased significantly from $26bn to $41.5bn. This latter figure was a 63% increase compared with the 2020 calendar year.

What’s more, profit before tax rose from $5.5bn to $17.6bn. Unsurprisingly, earnings-per-share (EPS) grew from ¢257 to ¢722. This is largely due to higher commodity prices in 2021. One risk, however, is that these higher prices may not be sustainable in the long term. 

Although past performance is not necessarily indicative of future performance, this firm’s results record is particularly strong. This gives me confidence as a potential investor.

With a forward price-to-earnings (P/E) ratio of 8.99, the Anglo American share price may be cheap. A major competitor, Antofagasta, has a forward P/E ratio of 19.76. Anglo American currently trades at 4,004p, up 38.5% in the past year. I think there may be further upside potential.   

Another global player

The second company is international distribution and services firm Bunzl (LSE:BNZL). With products including disposable packaging, it operates throughout Europe, the UK and North America. 

Between the 2017 and 2021 calendar years, revenue increased from £8.5bn to £10.2bn, while profit before tax grew from £409m to £568m. EPS rose from 119.4p to 162.5p. Like Anglo American’s, these historical results are strong.

The business, however, saw its adjusted operating profit decline between the 2020 and 2021 calendar years. This was mainly due to a fall in product sales during the pandemic. While a recovery is possible, I want to see this demonstrated in future results.

Despite this, the Bunzl share price might be cheap. It has a forward P/E ratio of 18.32, which is slightly lower than that of Sysco Corporation, a major competitor. This latter company’s forward P/E ratio is 19.38. Bunzl currently trades at 2,960p, up 28% in the past year.

Overall, I like both businesses. While Anglo American could continue to benefit from higher commodity prices in the near future, Bunzl could begin to recover following the pandemic. They may both also be cheap at current levels and I will be buying shares in each company soon.

2 FTSE 100 stocks I like

There are a number of stocks in the index that can help me inch towards the objective of financial freedom. Like two that I intend to discuss here. The first of these is Bunzl (LSE: BNZL) and the second is Croda International (LSE: CRDA). If I had bought them 10 years ago, they would have more than tripled my money by now. 

Perhaps that is why they are highly coveted by investors. This is evident from the fact that they are priced at a premium, as seen from their market valuations. Bunzl has a price-to-earnings (P/E) ratio of 22 times. And that for Croda International is 30 times.The FTSE 100 P/E is 15 times right now as per Bloomberg numbers, which gives some perspective on the matter.

Healthy results

Still, I think it is entirely possible that these stocks could continue to reward investors over the long term. This is obvious after looking at their recent results. Consider Bunzl first, which is a global distributor of products from food packaging to personal protective equipment. Its adjusted numbers, which indicate the health of the underlying business, have been impacted because of ongoing Covid-19-related trends in 2021. But on a statutory basis, its earnings are improved from last year. And with economic recovery underway, I reckon it can continue to strengthen further. 

Croda International, which provides speciality chemicals to industries like personal care and life sciences, has seen a big jump in both revenue and earnings from 2021 compared to the year prior. In this case, the growth is also mirrored in adjusted numbers. This goes a long way in explaining why it is trading at a premium right now. Management is also optimistic about 2022. 

What I’d do

I am convinced for these reasons that the share prices for both can rise. In fact, I have long liked them. The question on my mind is when I should buy them. In the case of Croda International, a significant price correction has happened so far this year. I can wait and watch for the next few weeks to see if that will continue and if it does, it would be a good idea to buy it when its valuation is closer to the FTSE 100 P/E. In the case of Bunzl, I could wait for another earnings release just to be double sure that this is a good time to buy it, which I think will happen down the line in 2022. 

Whilst Buffett invests predominately in US companies, the same approach can be applied to some leading UK stocks. Here are three FTSE 100 companies that I will be adding to my own portfolio.

Amongst the rapidly evolving UK business and domestic delivery sector, Royal Mail (LSE: RMG) is positioned as the only universal delivery operator, providing mail delivery, as well as parcel delivery and logistics services through its Parcelforce and GLS Systems divisions.

Unlike its new streamlined competitors, Royal Mail is distracted to an extent by legacy issues. Its attempts to focus on the growth of its GLS Logistics division are well founded, but at the same time it also needs to reduce its cost base, with over 700 managers currently set to leave the company as part of an estimated £70m restructure.

Revenues last year fell by 2.4% and performance in recent months has been impacted by issues including staff resourcing (due to the latest Covid variant). It is, however, worth noting that these revenue numbers were still ahead of pre-pandemic levels.

Despite these headwinds, management appear to be making progress and at a price-to-earnings (P/E) ratio of 8.6x, the share price may have been overly castigated. Although not without downside risk, this is a business where I believe Buffett would also see value at 441p.

Bunzl (LSE: BNZL) is a quiet giant, whose myriad of consumer products are used worldwide on a daily basis. It is a global leader in the supply of packaging materials, although the bulk of its profits are generated in North America and European markets.

There is, however, a lot more to Bunzl than just packaging, and its diversified revenue base is evidenced by the fact that a whopping 64% of its total revenue is now generated from other products.

I like the fact that Bunzl is at the forefront in the supply of recyclable and compostable packaging. This means that it has limited exposure to the tough new regulations on consumer items, such as single-use plastics, whilst the company is working hard with customers on transitioning their other products to sustainable materials.

Threats include global supply chain issues, rising raw material prices and spiralling fuel costs.  I have confidence, however, in Bunzl to ride out the storm, and at 2,744p it appears good value to me.

Another company investing heavily in the future, BT (LSE: BT.A) is attempting to shrug off a period of lacklustre performance over the past five years.

The shining light for the future appears to be its Openreach fibre business, which is gaining clients at pace, on the back of substantial capital investment (£1.2 billion in the last reported quarter alone).

Across its UK consumer businesses, levels of customer retention and the quality of its EE mobile network are further positives, although the disappointing performance of its Global business has been a drag on results and could continue to weigh on the share price.

Billionaire investor Patrick Drahi, with a 12.1% stake, appears to have a positive view on BT and this is mirrored by analyst forecasts.

At a price of 199p and a P/E ratio of 10.5x, BT seems good value to me.

Outsourcing and distribution

Bunzl is one of the largest distribution and outsourcing firms in the world. It has operations that span across the Americas, Europe, Asia, and the UK & Ireland. Bunzl’s products can be used across a multitude of industries such as healthcare, food service, retail, and cleaning. Some of its prominent products include packaging and general cleaning products such as gloves and disposable liners.

As I write, Bunzl shares are trading for 2,747p. At this time last year, the shares were trading for 2,350p which means the shares have returned 16% over a 12-month period.

Potential risks involved

Bunzl has benefitted from the pandemic as the rise of Covid-19-related equipment orders such as masks, gloves, and other cleanliness products boosted its balance sheet and performance. There is every chance that if the pandemic slows, sales of these products slows down also, affecting future performance and returns.

Many FTSE 100 stocks that specialise in consumer products have been affected by rising interest rates, which has led to rising costs. This means the rising costs of raw materials, some of which will be essential to Bunzl’s products, could eat into its profit margins. Other macroeconomic issues such as supply chain issues could also hinder Bunzl’s progress, performance, and returns.

A FTSE 100 stock I’d buy

Bunzl has a good track record of recent and historic performance, although I do understand that past performance is not a guarantee of the future. Looking back, I can see revenue and gross profit have increased year on year for the past four years. Coming up to date, Bunzl released a pre-closing statement last month for the year ending 31 December 2021. It said that revenue for 2021 should increase compared to last year by between 2% and 7%. Furthermore, it reported recent acquisitions had been successful and contributed towards further revenue growth.

Bunzl is also a consistent dividend payer. These dividends can make me a passive income. The current yield stands at 2.5%. It is worth noting that the FTSE 100 dividend yield average is 3%-4%. Dividends can be cancelled, however.

Finally, Bunzl operates in a burgeoning growth market and caters to many industries with its essential products. In addition to this, it has one eye on growth which I like. This can be demonstrated by Bunzl’s numerous acquisitions, especially over the past two years. I like it when a company is performing well but also investing to grow in the future, by acquisitions. 

Overall Bunzl is a solid FTSE 100 stock, in my opinion. I would add the shares to my holdings at current levels. It possesses a good track record of performance, pays a dividend to make a passive income, and has one eye on the future to continue its growth trajectory.

So long as the dividend keeps increasing, so should the share price. That’s something I want for my portfolio. So I had a look for top UK dividend growth stocks that I might want to buy for 2022 and beyond.

Screening for dividend growth stocks

I looked for stocks that grew their dividends at a compound annual growth rate (CAGR) greater than 5% measured over five years. Also, I required a CAGR in earnings, again measured over five years, of over 5%. Next, I looked for a less than 60% dividend payout ratio. If at least 40% of earnings are being invested in the business, that should grow future earnings, supporting further dividend increases. I did not want companies paying most of their earnings as dividends.

My screen returned over 30 stocks. I selected two from different industries. The two UK dividend growth stocks that I would consider adding to my portfolio for 2022 and beyond are life-saving technology company Halma (LSE:HLMA) and international distribution and services company Bunzl (LSE:BNZL). Both of these stocks are members of the FTSE 100 index.

FTSE 100 dividend growth stocks

Bunzl certainly has the hallmarks of a UK dividend growth stock. It has grown its dividend at a five-year CAGR of 9.55%. The company has grown through a mixture of organic growth and bolt-on acquisitions. Revenues have been growing well, and earnings have followed. In fact, earnings have grown faster than dividends. This has seen the company’s dividend cover increase over time, giving the dividend a good margin of safety. However, Bunzl shares trade at a price-to-earnings ratio of 18. That is relatively high compared to the industry and wider market. In addition, operating margins are consistent but slim at around 5.5% on average. Slim margins do not allow a lot of room to absorb increasing costs before earnings start to be affected. Growing earnings in part from bolt-on acquisitions require attractive purchases to be available. There is always the chance that these will dry up.

Table 1. Halma and Bunzl: key stock characteristics

Source: Company accounts and Yahoo finance

Halma has five-year CAGRs for dividend and earnings of 6.6% and 13.3%. Like Bunzl, earnings growth is outstripping dividend growth and has increased the dividend cover to a healthy 3.81 times earnings. That makes the dividend relatively safe. Like Bunzl, Halma grows revenue organically and by sensible bolt-on acquisitions. But, Halma’s operating margin averages closer to 18%. Again, revenue growth at Halma is partly dependent on being able to find attractive bolt-on acquisitions, which may not always be possible.

I would consider adding Halma and Bunzl to my portfolio for their potential as long-term dividend growth stocks

A top FTSE 250 healthcare share

I think my shares in veterinary services provider CVS Group (LSE: CVSG) will create handsome returns as Britons spend increasing amounts on their pets. High adoption rates during Covid-19 lockdowns also powered this sort of spending through the roof. But the amount we collectively forked out on animal care was rising strongly in the years before the pandemic, suggesting that this is no passing fad.

Forecasts from Mordor Intelligence on the animal healthcare market certainly suggests CVS Group has room for significant growth. It thinks the UK veterinary services market will be worth $2.4bn by 2026, up from the $1.4bn in 2020.

CVS Group may suffer some trouble if shortages of veterinarians worsen. “The group’s done a lot to help keep retention and vacancies at acceptable levels,” as analysts at Hargreaves Lansdown recently commented, “but it’s something worth keeping an eye on.”

Right now though, I think the brilliant sales opportunities coming its way still makes this a FTSE 250 share worth owning.

City analysts expect earnings at CVS Group to rise 7% in this financial year to June. This leaves the company trading on a P/E ratio of 24.7 times. Such a hearty valuation could prompt a share price correction if trade begins to slow. But as things stand, I think the healthcare share is worth every penny of its premium valuation.

A FTSE 100 stock built for growth

A big risk facing Bunzl (LSE: BNZL) in the near-term is a sudden fall in Covid-19 equipment. Sales of its gloves, sanitiser, masks and the like have remained strong as the Omicron variant has driven infection rates higher. Toppling cases in some parts of the globe need to be watched carefully then.

It’s my opinion though that Bunzl remains a top buy, despite this risk. I bought the FTSE 100 business long before the pandemic and plan to cling onto it forever. It supplies must-have products for a variety of industries like healthcare, food service, retail and cleaning. It also has a broad geographic footprint as it sells its goods into more than 30 countries.

This strength-through-diversification platform isn’t the only reason I love brilliantly-boring Bunzl however. I also like its strong track record of growing annual earnings by way of acquisitions. And, pleasingly, the company has no plans to slow its M&A ambitions. Bunzl made more than a dozen acquisitions in 2021, taking total spending to a whopping $950m for the past two years combined.

City forecasters believe earnings will match the previous years levels in 2022. This leaves Bunzl trading on a forward P/E ratio of 17.6 times. This looks pretty cheap, in my opinion. So cheap in fact that I’m thinking of buying more of the FTSE 100 business for my portfolio.

A high-risk FTSE 100 share

There’s a lot that I believe International Consolidated Airlines Group (LSE: IAG) has going for it. It owns established brands like British Airways that are popular with travellers. It has exposure to money-spinning transatlantic routes. And despite its failed attempt to acquire Air Europa the business also operates in fast-growing European low-cost segment through its Aer Lingus and Vueling divisions.

It’s impossible to talk about travel stocks like IAG without discussing the Covid-19 crisis. And as things stand this remains a big concern to me as an investor. Today reports emerged that British Airways will scrap hundreds of flights to US destinations Nashville, Baltimore and New Orleans due to soaring Covid-19 infections.

There could be much more disruption too as Covid-19 infection rates soar in many regions. The number of US cases has just hit a new daily record high of 1.5m. Also this week the World Health Organisation has warned that Europe faces a “tidal wave” of Omicron infections that could affect half of all Europeans in the next couple of months.

Debt worries

This is particularly concerning for IAG given the huge amounts of debt it has to pay off. It had €12.4bn worth of net debt on the books as of September, and it may have to accrue even more before the pandemic is over to survive the crisis. Shareholders should be braced for the possibility of fresh share placings that could dilute their interests, too.

It’s also worth remembering that such high debt levels could seriously undermine IAG’s growth plans and its ability to exploit industry opportunities like the highly-popular budget segment if it comes though the crisis.

Banking on Bunzl

For these reasons I’d much rather invest in Bunzl (LSE: BNZL) shares instead. In fact this is a stock I’ve already bought to try and build funds for retirement. I like the broad range of essential everyday products it supplies across many industries. The goods it sells include wound dressings for hospitals, packaging for supermarkets’ fruit and veg, and hard hats for construction sites.

Bunzl has its fingers in many pies and it does what it does across many territories, too (it works in some 31 countries in total). This diversification by product, sector and geography gives it exceptional profits stability. And as a consequence it provides supreme peace of mind for me. There’s good reason why Bunzl’s grown the annual dividend for 28 years on the spin.

My only concern for Bunzl is that its acquisition-led growth model could see it run into trouble. This could be, for example, if it overpays for an asset or a company fails to deliver expected returns. That said, I’m encouraged by the FTSE 100 firm’s strong track record on this front. It’s why I’m considering buying more Bunzl stock for my portfolio today.

Rather than trying to pick stocks and shares I think would do well over the next year or so, I would focus on buying high-quality companies that have a track record of operating successfully over the long term.

I would also include investment trusts in my portfolio, as these have been shown to produce superior returns over periods of five to 10 years. 

Invest for the future

The first part of my portfolio I would devote to high-quality operating companies. What I mean by this is that I would search out organisations with a solid competitive advantage and substantial profit margins. In theory, these qualities should help them prosper in the long run. 

An example of the sort of organisation I invest in for my portfolio is the distribution group Bunzl.

This company’s main competitive advantage is its size. Distribution businesses tend to have small profit margins, but its substantial economies of scale mean Bunzl’s margins are bigger than average. This gives the firm a significant advantage over its peers. It has been able to use this advantage to consolidate the market and offer clients a better level of service. 

Of course, there is no guarantee this advantage will remain in place forever. The company could come under attack from a larger competitor. This is a risk I will be keeping an eye on as we advance. 

However, I would be happy to include the company in my £1k portfolio for the next decade, despite this risk. 

Another example is the property portal Rightmove. As one of the most visited websites in the country, the business has a substantial competitive advantage. I think it is unlikely it will be unseated from this position, although nothing is impossible when it comes to the stock market. 

Funds for growth

As well as the stocks outlined above, I would also buy some investment trusts for my portfolio. 

Investment trusts are a great way to invest in the market because they are run by professional managers. Further, unlike traditional funds, they are what is known as closed-ended. This means they do not have to buy and sell investments to meet investor withdrawals and deposits. As such, they can invest with a much longer-term view and do not have to worry about investor sentiment. 

BlackRock Throgmorton Trust is a great example. The trust focuses on finding the UK’s strongest emerging companies, which I would not be comfortable with buying personally, but I am happy to outsource this to a manager. The one downside of this approach is the trust’s hefty management fee of 1.6%. Still, I am happy to pay a fee for the experience on offer.

A risk of using this approach is the trust could end up underperforming the market if it picks the wrong investments. This means I could be paying a hefty fee for underperformance. 

Despite this risk, I would be more than happy to buy the trust for my £1,000 portfolio and hold it for the next decade. 

Is Tesco too cheap to miss?

Tesco’s (LSE: TSCO) share price looks hugely attractive to me right now. City analysts think earnings at Britain’s biggest retailer will rise 175% in the financials year to February 2022. Consequently, it trades on a forward price-to-earnings growth (PEG) ratio of 0.1.

It’s my opinion however, that this low multiple reflects the rising risks to Tesco’s profits. It’s not just the problem of intensifying competition that makes me fear for the FTSE 100 firm in 2022. It’s the possibility that supply chain problems will worsen as new post-Brexit customs checks come into force, pushing up costs and raising the prospect of empty shelves.

The post-Brexit blues

To illustrate these problems, the IMF commented this week that “trade with the EU has dropped significantly” following Brexit. It added that “we expect there will be more impact ahead as the custom checks are going to be introduced in UK in the beginning of next year.”

This threatens to be a bigger problem for sellers of perishable goods like supermarkets as the time spent at ports lengthens.

There are reasons I like Tesco shares. I’m attracted by the grocer’s exceptional online operation, one that should reap massive rewards as food shoppers switch rapidly online. I also think the supermarkets could thrive in 2022 should the pandemic roll on (or even worsen) and people stay at home in large numbers.

A better FTSE 100 share?

However, the risks facing Tesco next year and beyond mean I won’t be adding its shares to my Stocks and Shares ISA. I’d much rather build my holdings in support services provider Bunzl (LSE: BNZL).

Now Bunzl isn’t as cheap as Tesco’s share price. City analysts think earnings here will slip 1% in 2022. This leaves it trading on a forward price-to-earnings (P/E) ratio of 19.9 times, far above Tesco’s average of 13.5 times for the short-to-medium term. But, as they say, “you get what you pay for”. And I think Bunzl’s a much better bet than the FTSE 100 grocer to deliver big shareholder returns.

Rock-solid

Quite simply, I believe Bunzl is one of the most robust FTSE 100 shares out there. It supplies a broad range of essential products to multiple industries across various continents. This diversification has underpinned a long record of sustained annual earnings growth, insulating it from weakness in one or two sectors and territories.

Indeed, these qualities make it a particularly great stock for me to buy, given the hugely-uncertain outlook for the global economy for 2022. However, I don’t just like Bunzl because it’s brilliantly boring. I’m actually excited by the company’s ongoing commitment to building growth through acquisitions. So far in 2021, it’s made 13 new acquisitions following two new deals last month.

Bunzl’s share price could suffer if M&A activity fails to deliver the anticipated rewards. But, all things considered, I think this is one of the best FTSE 100 stocks to buy in the current climate.