Why I’d buy these 2 FTSE 100 defensive shares today

I think holding FTSE 100 defensives in my investing portfolio is always a good idea. It can keep me safe in times of economic downturns. 

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

It is not like I am expecting a recession or even a slowdown. But I do think that it is a good idea to allocate a proportion of my stock investing portfolio to FTSE 100 defensives or safe shares. 

Why buy FTSE 100 defensives

The reason is that economic growth happens in cycles. This means that we should always be prepared for the next phase, and that includes downturns. Moreover, sometimes these come about unpredictably, as we saw last year. 

The FTSE 100 index has a number of high-quality defensives to choose from, ranging across sectors from healthcare to technology, that I can choose from today. Here are two of them:

#1. Hikma Pharmaceuticals: robust health

After touching all-time highs in October, drug manufacturer Hikma Pharmaceuticals (LSE: HIK) has now seen a share price fall of 18%. But going by its results, I think that the manufacturer of Covid-19 medication is due for another share price rally. 

For the full year 2020, the company saw a 23% increase in operating profit and its revenues increased as well. It expects to continue making progress in 2021 too. 

A small positive in buying the share is also its dividend payouts. It has a yield of 1.6%, but it is increasing its dividends. 

The flipside here is that its reported earnings per share (EPS) fell by 9% in the year. To me, this makes further increases in dividends unlikely.

Also, I think this FTSE 100 share could take its time to start rising from here. Defensives or safe stocks are less attractive to investors now, as the economic outlook improves. For the long-term, though, it is a buy for me. 

#2. Unilever: back to market crash levels

The consumer staples’ giant Unilever (LSE: ULVR) saw a sharp share price fall early last month after it reported an underwhelming set of financials. Both the company’s revenues and profits fell.

Going by the company’s past resilience however, I see this more as a blip than the start of a trend. This is even more so now that the economy will recover in 2021. 

Importantly, for income investors the 1% decline in its EPS was disappointing too. The Unilever stock did not have a high dividend yield in the past. But after the hit to dividends across the board in 2020, it does look relatively more attractive from the income perspective. It has a yield of 3.6% now, which I think is alright compared to many others. 

The risk to Unilever is that of a slow recovery or if cost pressures mount.

Another poor year for the UK’s consumer giant will tell further on its share price. Investors have made their disappointment with the latest results amply clear already. In the weeks following the results, its share price dropped to the levels seen during last year’s stock market crash. 

The FTSE 100 share has started recovering since, and I am optimistic about its prospects on balance. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has recommended Hikma Pharmaceuticals and Unilever. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »

Investing Articles

Investing £5 a day could help me build a second income of £329 a month!

This Fool explains how £5 a day, or one less takeaway coffee, could help her build a monthly second income…

Read more »