Earnings results are a great way for investors to judge a company. They’re used to determine whether companies are on track with their initial guidance. These results can often radically move share prices in either direction, depending on the numbers reported. So, here’s an earnings preview for three FTSE firms reporting results this week.

It’s always best to compare firms’ new quarterly/half-year numbers to those from prior years. But certain revenue figures may have been impacted by the pandemic, so it’s important to get context from pre-pandemic levels too. The new figures that are due can also be useful to determine whether a company can perform better than its previous year’s numbers, or if it can beat analysts’ annual forecasts. It’s a shame that analysts in the UK don’t normally publish earnings previews for quarterly or half-year periods.

Royal Mail (Q1 trading update)

Royal Mail (LSE: RMG) is Britain’s biggest postal service and courier company. The group runs the brands Royal Mail and GLS (an international logistics company). The FTSE 250 firm is expected to provide a trading update for its most recent Q1 performance ending June 2022 on Wednesday 20 July. The company’s financial year ends in March 2023.

Analysts covering Royal Mail are predicting a slowdown in both its top and bottom lines for the current financial year. The board painted a gloomy picture for the group in its Q4 earnings call, which sent the share price crashing. Lockdown tailwinds have dissipated, and the logistics group is locked in discussions with staff over its latest pay round, with the threat of possible strike action. Pair that with a slowing British economy and high fuel costs, and it seems to me that the only way for its share price to go is down. Making matters worse, EPS for its current year has seen a steady decline from £0.54 to £0.45 over the last 90 days. Nonetheless, if revenue figures come in above 2020 levels, there could be a surprise rally.

Howden Joinery (H1 earnings)

Howden Joinery (LSE: HWDN) is the UK’s number one trade kitchen supplier. It provides thousands of products across kitchens, joinery, and hardware. The FTSE 100 firm is expected to post its half-year earnings for its six months performance ending June on 21 July. The company’s financial year ends in December 2022.

The overall consensus is that Howden Joinery is expected to continue growing its top and bottom lines. Analysts have also revised their EPS targets for the current year upwards, by nearly £0.01 in the last 90 days. That being said, investors will be paying attention to the guidance provided on Thursday in order to determine whether the supplier can beat its previous year’s record figures.

Dunelm (Q4 trading update)

Dunelm (LSE: DNLM) is a British home furnishings retailer that operates throughout the UK. It’s one of the largest homewares retailers in the country with an ever growing market share. The FTSE 250 firm will be posting its Q4 trading update for the period ending June 2022 on Thursday 21 July. The company’s financial year ends in June 2022.

While public listed companies normally release their full year results along with their Q4 numbers, Dunelm will only report its FY earnings on 14 September. This is most likely due to its financial year only ending three weeks ago. Therefore, the trading update will be more akin to an earnings preview.

Having said that, the revenue figure will be watched closely as specific bottom line figures will only be released in September. Comments from the board will also be closely monitored as investors look to determine whether EPS estimates will be met. Nevertheless, analysts have revised their EPS targets from £0.79 to £0.80 in the last 90 days. Despite that, a slowdown in retail sales in the last quarter should be kept in mind. It may have impacted Dunelm’s top line figure, along with higher fuel and labour costs. These macroeconomic factors could see analysts’ EPS being revised lower, if management hints at lower margins in the trading update.

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Sales up

Underlying sales rose 2.5% over its third quarter. This brings growth to 4.4% for 2021 to date and within ULVR’s target range of 3-5% for the year. That feels like an impressive result given how much demand the company saw for its in-home food and hygiene products during multiple lockdowns around the globe in 2020. When a company does well (in spite of tough comparables), it’s worth taking notice.

Of course, Covid-19 continues to affect trading in some parts of the world (e.g. South East Asia). Even so, Unilever said it had performed well in key markets such as the US, China and India where restrictions were slowly being lifted.

Its e-commerce channel was booming too, having grown 38% over the period. There was also encouraging news on its high-growth businesses. Prestige Beauty and Functional Nutrition both registered double-digit underlying sales increases in the three months.

This is not to say the company is devoid of headwinds. Indeed, Unilever reflected today that cost inflation was at “strongly elevated levels“.  Having already raised prices by 4.1% over the period, the Marmite-maker said this pressure would likely carry on into 2022.

The Unilever share price: what now?

After enduring a volatile 2021, the Unilever share price has sunk back to levels hit during the March 2020 coronavirus crash. That may make some holders understandably uncomfortable. However, it does suggest to me that the stock is now firmly in the ‘buy zone’. 

Sure, the aforementioned inflation looks like sticking around longer than many economists and analysts expected. In addition to this, it’s clear that the pandemic is far from over (infections in some parts of the world are rising again). Throw in the potential for poor weather impacting sales and it’s clear Unilever isn’t devoid of risk.

But do any of these permanently impact the investment case? I don’t think so. Let’s not forget this is a company that boasts an enviable portfolio of ‘sticky’ brands. Shoppers will consider standard purchases in good times and affordable treats in more difficult periods. The company’s truly global reach and product diversification should also help keep sales stable, at least relative to other FTSE 100 companies. 

The dividend stream is also attractive. Before this morning, analysts had Unilever stock down as yielding 3.7% in the current year. That may be far less than other stocks in the FTSE 100, but payouts should be sufficiently covered by profit.

Last year excluded, the company has also been remarkably consistent in raising its dividends on an annual basis. Yes, nothing can be taken for granted. However, it’s this kind of reliability that I reckon makes Unilever is a great core holding for most portfolios. 

Quality (at a discount)

I’ve been a fan of Unilever for many years. Today’s update doesn’t change that. In fact, recent selling pressure makes me think now could be an excellent time for me to snap up the stock. 

Trading for 18 times earnings (a discount to its five-year average P/E of 21), I’d strongly consider adding ULVR to my portfolio today.

The post Here’s why the Unilever share price is flying today appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended 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.

Should I be adding this consumer goods behemoth to my shopping list too? 

FTSE 100 laggard

Based on recent performance, only contrarians need apply. Reckitt fell almost 12% in value over the previous trading week. All told, this meant that Reckitt’s shares had tumbled 30% since the end of July 2020. Contrast this with a 17% rise in the usually pedestrian FTSE 100.

At first glance, this fall seems odd. After all, this is a company that owns Dettol and Lysol — brands that shoppers have been flocking to over the last year as we’ve all become just that little more conscious of keeping things as clean as possible.

Unfortunately, it would seem that inflation is beginning to bite. A rise in the price of raw materials in the first six months of 2021 is having a negative impact on profit margins at the FTSE 100 constituent. Factor in the potential for sales of disinfectants to moderate as we emerge from the Covid-19 storm and Reckitt’s loss of momentum makes some sense.

Time to buy?

I think there are arguments for and against me buying this stock now.

The former includes the fact that Reckitt boasts a portfolio of easily recognisable, ‘sticky’ brands (which also includes Air Wick, Calgon and Durex). It seems fair to say that demand for its products will never evaporate, even if cheaper alternatives are available. This gives Reckitt a defensiveness some other companies in the FTSE 100 arguably lack. It also makes the valuation of 19 times forecast earnings tempting, in my opinion. 

The dividend stream compensates holders as well. I expect Reckitt to return 175p per share to holders this year. That’s a nice 3.2% yield at today’s share price  — far more than I’d get via a Cash ISA.

Although one should not draw too many conclusions from such as small period of trading, it’s worth highlighting that Reckitt didn’t feature in the list of most popular sells last week either. This may suggest that a least some of those buying now have the intention of staying invested for a while. 

Ongoing weakness

Of course, how long a full recovery takes is up for debate. As things stand, no one can be sure whether inflation is here to stay. If it is, there’s no guarantee Reckitt will be successful in passing on costs to consumers via price hikes. The shares will probably resume their downward momentum if sales decline. 

Regardless of this, performance over the long term hasn’t exactly been stellar. Annualised returns at Reckitt have been only slightly better than the FTSE 100 over the last 10 years. Those advocating a no-frills passive approach to investing would use this as proof that buying a specific stock rather than an exchange-traded fund isn’t worth the additional risk. So, the question I need to ask myself is whether I’d get a better result over the next decade.

On the fence

For now, I’m content to watch Reckitt from the sidelines. While I do think it will eventually recover, I also think there are potentially far better options in the index for me to make money in the meantime.

The post Investors are buying this FTSE 100 stock. Should I? appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Hargreaves Lansdown. 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.

The Unilever (LSE: ULVR) share price was firmly in negative territory this morning. Is this connected to the wobbly market conditions we’ve seen earlier this week or are investors simply unimpressed with today’s first-half numbers? I think it’s a mixture of the two. 

“Good progress”

As far as I’m concerned, today’s results were far from bad. Unilever delivered sales growth of 5.4% over the first six months of 2021. In fact, this was better than analysts had been expecting. 

Like so many other businesses, the FTSE juggernaut is also seeing the benefit of having a solid online channel. Its e-commerce arm grew 50% over the first half of 2021. No less than 11% of the firm’s sales now come from here.  

On top of this, CEO Alan Jope said that the company had made “good progress” on its strategic goals. These include rotating its portfolio to “high growth spaces” such as Prestige Beauty and Functional Nutrition. 

As a result, the company remains “confident” that it will hit its 3-5% sales growth target for the full year. That doesn’t sound too bad, right?

So why is the Unilever share price lower?

There might be a few reasons. While it’s confident on its sales growth target, it did highlight that it would face “more challenging comparators” in the second half of 2021.

In addition to this, cost inflation is starting to have an impact. In fact, the company can’t be sure what margins will look like by the end of 2021. For its part, Unilever thinks they will come in flat. However, that’s unlikely to have gone down well with a market that’s already worried about rising Covid-19 infections and the accompanying ‘pingdemic’.

Chuck in some currency headwinds and a reduction in free cash flow and the fall in the Unilever share price makes more sense. More generally, some investors may simply be less bullish on management’s ability to grow the business. That’s understandable to a point. Growth has stalled somewhat in recent years. 

Here’s why I’d buy today

Before markets opened this morning and Unilever’s share price dived, the stock traded on 20 times earnings. To me, this already looked like a fair price to pay. This is a high-quality, defensive business with a portfolio of familiar brands and a track record of generating great returns on capital. It’s unlikely to ever trade at a ‘bargain’ valuation.

Unilever isn’t lacking in big-name supporters either. Tellingly, top UK fund manager Nick Train continues to hold the stock in spite of near-term issues. In fact, Unilever represents Train’s third-biggest holding in both the Lindsell Train Global Equity and UK Equity funds. 

I also think the dividend stream compensates for the uninspiring performance in the Unilever share price over the last year. The current analyst consensus has the FTSE 100 firm returning 144p per share this year. That’s a yield of 3.5% at today’s price.

On top of this, the firm is busy buying back up to €3bn of its own stock. In time, this should help push the Unilever share price higher.

Opportunity knocks

When looking for potential core holdings for my portfolio, this FTSE 100 company always springs to mind. And, despite today’s tumble, I still reckon Unilever is a great stock to own for the long term. I’d be happy to buy today. 

The post What’s going on with the Unilever share price? appeared first on The Twelfth Magpie.

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Paul Summers owns shares of Lindsell Train Global Equity. The Motley Fool UK has recommended 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.

“A good start to the year”

Perhaps the most important point from today’s statement was the 5.7% underlying sales growth reported by the FTSE 100 member. This is positive as Unilever had previously reported fairly sluggish trading over the pandemic, despite virtually all of us being stuck at home.  

On a geographical level, sales in the Emerging markets rose 9.4% over the three months to the end of March. That’s not surprising when you consider that many countries in this region were in lockdown over the same period in 2020.

Sales growth in developed markets was more depressed with growth in North America being held back by Europe. Strong demand for food was offset by lower sales of personal goods products. Even so, the firm’s e-commerce operations reported sales growth of 66%.

Commenting on today’s numbers, CEO Alan Jope said that the company had made “a good start to the year.” He went on to say that the “operational separation” of the firm’s tea business was progressing, although the actual form this takes (IPO, demerger or sale) is still to be decided. Unilever has also creating a new unit (Elida Beauty). This houses its smaller personal care brands, such as Q-Tips and Impulse, that could also be put on the block.  

Following hot on the heels of FTSE 100 oiler BP, Unilever revealed that it would kick off a €3bn share buyback programme in May. This will be completed by the end of 2021. 

I’m bullish on the Unilever share price

The Unilever share price is now barely 3% higher from where it was a year ago. For perspective, the FTSE 100 index has climbed 14% over the same time period.

Despite this lacklustre performance, I see the Marmite-owner as a quality, defensive pick. Like UK fund managers Terry Smith and Nick Train, I’m drawn to its consistently solid margins and returns on capital. These are what I look for as a long-term investor. They help to explain why the Unilever share price is up 38% over the last five years. The FTSE 100 is up 12%. 

The outlook is also positive. The firm is targeting underlying sales growth of 3-5% in 2021. This number is likely to be at the top end over H1. 

This isn’t to say that Unilever has turned the corner just yet. The company reflected that its operating environment “remains volatile” due to COVID-19 and the impact of sporadic lockdowns across the world on shopper behaviour.

The huge rise in coronavirus infection in India over recent weeks means investors should not assume that today’s positive momentum in the Unilever share price will necessarily hold in the near term. To be clear, no investment is devoid of risk. Even so, I think this is already priced in for Unilever. 

Stay diversified

Trading at 19 times forecast earnings before markets opened, I think this company represents great value right now. The share price won’t explode in the same way that some small-cap stocks have recently. However, it offers that strong foundation many investors probably look for. 

So, while I’d maintain a sufficiently diversified portfolio as a precaution, I’d have no issue with buying the stock today.

The post The Unilever (ULVR) share price has jumped. I’d buy now! appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended 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.

The fluctuating Unilever share price

Despite Unilever’s share price performance, I think the business has done pretty well.

This large consumer goods business owns a portfolio of 47 brands, covering a wide range of well-known products. These include Dove soap, Hellmann’s mayonnaise and, my personal favourite, Ben & Jerry’s ice cream. Needless to say, the business has a diverse collection of offerings for its customers. And these brands continued to maintain their popularity throughout the pandemic, especially its hygiene and personal care products, given the acute focus on Covid-combatting purchases.

Overall, it achieved a 1.9% growth in sales, despite consumer spending in the first half of last year falling considerably, according to the Office for National Statistics. While this is hardly stellar growth for a £100bn blue-chip consumer goods business, that’s quite an achievement, given the circumstances.

So why did the Unilever share price fall after publishing these results? Total sales may have met investor expectations, but underlying profit didn’t. Operating income fell by 5.8% as some of the company’s high-margin product sales volumes declined. For example, ice cream missed out on the 2020 summer season since lockdowns prevented most of us from enjoying the collective sun experience.

Looking ahead

Given that the decline in underlying profits was caused by external factors rather than a significant problem within the business, I’m not particularly concerned by the drop.

The vaccine rollout is progressing relatively quickly here in the UK. And providing infection rates don’t spike again, it looks  as if life will return to relative normality in time for the upcoming summer season.

What’s more, to protect the business’s financial health, the management team is focussing on building its cash position. Subsequently, it’s increased its free cash flow by €1.5bn to €7.7bn.

Impressive as this is, Unilever still has some tough competition to deal with. Afterall, the consumer goods market is filled with alternative brands. Both social media and digital marketing have also made it much easier for smaller companies to launch and steal market share from the likes of Unilever.

If the firm fails to maintain the pricing power of its brands, then its margins may get squeezed. This, in turn, would continue the decline in underlying profits that would subsequently lead to a fall in the Unilever share price.

The bottom line

Unilever is by no means a high-growth stock. However, it has consistently and reliably returned profits to shareholders through its dividend policy.

Given its track record and extensive collection of brands, I believe the business can continue to perform well for many years to come. Therefore, I think the recent decline in the Unilever share price is an opportunity to add the stock to my income portfolio.

The post Is the Unilever share price too cheap? appeared first on The Twelfth Magpie.

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Zaven Boyrazian does not own shares in Unilever. The Motley Fool UK has recommended 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.

From a contrarian perspective, airline stocks definitely look interesting. There’s certainly a chance these stocks could rebound. However, if you invest in airlines now, you’re taking on a fair bit of risk. What if travel doesn’t return to normal for years? Will these companies be able to survive in their current form? With so much uncertainty due to Covid-19, a near-term rebound is not guaranteed.

In my view, investors are better off investing in sectors that are holding up well in the current environment and will continue to hold up well if economic conditions deteriorate further. With that in mind, here are my three preferred sectors of the FTSE 100 to invest in right now.

A defensive sector  

The first sector I like in the current environment is healthcare. And not just because it’s leading the fight against Covid-19.

What I like about healthcare is that it’s a defensive sector. People still buy medication and have operations when the economy is contracting.

I also like the long-term growth story associated with the sector. The world’s ageing population, rising emerging market wealth, and the increasing prevalence of major health issues are dominant structural forces that should provide tailwinds in the years ahead.

There are some excellent healthcare stocks in the FTSE 100. Smith & Nephew, GlaxoSmithKline, and Hikma are some of my favourites. I think these kinds of stocks offer a favourable risk/reward proposition at present.

Resilience in a downturn 

Another sector of the FTSE 100 I like right now is consumer goods.

The reason I like consumer goods is that companies in this sector tend to be very resilient because they sell everyday products that people can’t do without. 

It’s also worth pointing out that consumer goods companies that focus on cleaning products are benefiting from the increasing focus on hygiene. Reckitt Benckiser is a good example. Sales of its cleaning goods (Dettol, Lysol) are flying right now.

Consumer goods firms may not be the most exciting companies, however, they tend to be solid investments. Like healthcare stocks, they can provide you with portfolio protection.

My top FTSE 100 sector 

Finally, my top FTSE 100 sector remains technology. I’ve been bullish on the tech sector for a while now, but the disruption we’ve all experienced from Covid-19 has amplified my bullishness. As the world has been forced to go into shutdown mode in the last few months, it’s tech companies that have really shone.

Some areas of technology that are booming right now include:

• Online shopping 

• Remote working technology

• Video communications

• Cybersecurity

• Video gaming

Going forward, I expect the technology industry to continue powering ahead. Covid-19 is likely to leave a lasting impression on consumer behaviour, and technology is likely to benefit.

The FTSE 100 isn’t known for its technology prowess. It doesn’t have stocks like Apple, which is listed in the US.

However, there are plenty of companies in the FTSE 100 that have technology at their core. Sage, Rightmove, and Hargreaves Lansdown are good examples.

I think these kinds of companies are going to be the real winners in the years ahead as the world becomes more digital.

The post Forget airline stocks. Here are the 3 sectors of the FTSE 100 I’d be investing in now appeared first on The Twelfth Magpie.

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Edward Sheldon owns shares in Smith & Nephew, GlaxoSmithKline, Reckitt Benckiser, Sage, Rightmove, Hargreaves Lansdown, and Apple. The Motley Fool UK owns shares of and has recommended Apple and GlaxoSmithKline. The Motley Fool UK has recommended Hargreaves Lansdown, Hikma Pharmaceuticals, Rightmove, and Sage Group. 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.

December was a particularly rough month for investors after the company revealed that underlying sales growth for 2019 would come in slightly below previous guidance as a result of problems in India and China. The Marmite-maker also stated that growth over the first half of 2020 would likely be below 3%.

Having been such a reliable performer for so many years, is this loss of form a sign that its crown is slipping or a chance for prospective buyers to take a stake on temporary weakness? I’m inclined to say the latter. 

Growing pains 

Granted, today’s full-year results were nothing to shout about. As predicted, underlying sales were lacklustre, increasing just 1.5% in the fourth quarter and 2.9% over 2019 as a whole. That said, both percentages were slightly higher than some analysts were expecting. Homecare — the smallest of the firm’s three divisions — provided the biggest lift, registering growth of 6.1%.

Despite difficult trading in West Africa, South Asia and the Middle East at the tail end of 2019, sales in emerging markets (a key source of growth for Unilever) also climbed 5.3%. Developed markets “remained challenging” however, especially Europe.

At €6bn, net profit was down 38.4% from the previous year due to the sale of its spreads business in 2018. In related news, it was announced today that management would be carrying out a strategic review of its global tea business (which includes brands PG Tips, Lyons and Lipton) suggesting another sale is on the cards.

Commenting on the company’s outlook, CEO Alan Jope — who has now been in post for a year — said that underlying sales growth in 2020 was now likely to be “in the lower half of the multi-year 3-5% range” and “second-half weighted”. He reiterated that growth over the first half of Unilever’s financial year would be “below 3%” before adding that it wasn’t possible to gauge the impact of the coronavirus outbreak on trading at the current time.

Opportunity knocks?

Unilever’s shares were up slightly in early trading, suggesting that market participants were generally satisfied with today’s statement.

Based on analyst projections for 2020, this leaves the shares trading on 19 times expected earnings — slightly below the five-year average of 21. While not offering incredible value, I do think this might be a price worth paying for a company with huge geographical diversification and still generating massive free cash flow (€6.1bn in 2019).

The return on invested capital — a metric of supreme importance to one of the UK’s best-performing fund managers — has also been consistently high over the years. In 2019, this rose to 19.2%. Many companies would love to report such a number to their investors. 

Of course, the recent fall in the share price also means a larger dividend for those willing to stick around while the business is reshaped. A mooted 181 euro cents (153p) per share total return in 2020 translates into a decent yield of 3.4%.

To say that there is a ‘perfect’ time to buy stocks is stretching things a bit since no one knows where markets will head over the short term. Notwithstanding this, I’m confident the Unilever share price will recover and regard the recent decline as a buying opportunity. 

The post Is now the perfect time to buy FTSE 100 stalwart Unilever? appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended 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.

Today, I’m focusing on two firms that, while going through challenging times, will likely fall into the former category. 

Worth a bet

With gambling firms continuing to feel the pressure of increased taxation and regulation across the industry (the recent introduction of a £2 limit on fixed-odds betting terminals in shops is an example), it’s not all that surprising their stock continues to be shunned by investors.

One that I continue to think has been undeservedly punished, however, is 888 Holdings (LSE: 888), particularly as it doesn’t have a presence on the high street whatsoever. Instead, 888 is focused purely on providing online casino, bingo, sports and poker games. In contrast to other operators, it also benefits from owning its own technology platform.

Recent trading at the small-cap has been far better than at some of the UK’s battered bookmakers. June’s trading update highlighted a 6% increase in group revenue on a like-for-like basis as a result of increased marketing investment. This has, in turn, helped the company record a 20% rise in new customers. The only real fly in the ointment was the poker market which, while seeing a slight improvement in revenue, “remained challenging.“

Another attraction to 888 is the fact it already has an established presence in the US through its tri-state poker network and administration of the Delaware state lottery — something which could prove particularly lucrative if regulation over betting continues to be initiated in multiple states across the pond.

Taking all this into account, a forward price-to-earnings (P/E) ratio of 12 for this financial year looks cheap to me. The 6.4% yield should also be adequate compensation while investors await a full recovery. 

As a holder of the stock, I’ll be hoping for more positive news when interim results are revealed on 10 September.

Share price stabilising

Another business reporting next month is consumer products mid-cap PZ Cussons (LSE: PZC) — owner of brands such as Imperial Leather and Original Source. The company is due to issue a trading update to coincide with its Annual General Meeting on 25 September. 

After a pretty awful few years, the share price has shown signs of stabilising in 2019 (although it’s still down roughly 40% from where it was three years ago).

That’s not to say, however, that PZ is out of the woods just yet. As my Foolish colleague Kevin Godbold summarised last month, the company’s last set of full-year results were hardly great with issues in its African markets continuing to offset performance elsewhere.

Nevertheless, the very fact the company is so geographically diversified is, for me, one of its biggest attractions. Combine this with the fact consumers often stick with brands they can trust in sprite of cheaper alternatives and you have a pretty defensive investment.

Shares in PZ currently trade at 16 times forecast earnings and yield a smidgen over 4% with the latter covered 1.5 times by profits. While I doubt the share price will rocket next month, news that trading hasn’t got any worse could bring more investors back to the stock. 

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Paul Summers owns shares in 888 Holdings. The Motley Fool UK owns shares of PZ Cussons. 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.

This has left the company’s shares trading at just 14.2 times forward earnings, which I believe is an incredibly attractive price for what is a non-cyclical, high-yield stock that is still growing earnings at an impressive clip.

Now, it is true that BATS and other tobacco firms are grappling with major changes to tobacco consumption with developed markets continuing to see steady decreases in the number of smokers. However, with incredible pricing power, expansion into developing markets, the increasing uptake of next generation products and acquisitions, it is still growing at a great pace.

Over the past 10 years the company has averaged 4% annual revenue growth and 10% annual earnings per share growth thanks to these factors. I see little reason for this growth to slow as the company completes its acquisition of highly profitable Reynolds American and invests in high-growth, non-traditional tobacco products.

Another benefit of its business is its highly profitable nature with operating margins in H1 2017 reaching a fantastic 33%. Growing margins mean considerable cash flow for the business, which is being used both for investments in growth and increasing shareholder returns, with the company’s shares currently throwing off a respectable and growing 2.23% dividend yield.

With solid growth prospects, a healthy dividend and unimpeachable defensive characteristics, I view BATS’ current valuation as very, very attractive.

And one for the contrarians 

The past month has been even more unkind to consumer goods firm PZ Cussons (LSE: PZC) as its shares have dropped a full 15% in value due to both wider market problems and a rather uninspiring set of interim results.

But with its shares now priced at 16.9 times forward earnings, I think contrarian investors could find this defensive, diversified business an interesting option, especially compared to slightly more expensive peers Unilever and Reckitt Benckiser.

Cussons’ recent share price slide is mainly due to poor trading at its UK franchise, which is its most profitable region by far. Management has put the blame on an uncertain economic environment that caused shoppers to trade down for cheaper, non-branded personal care goods. This led operating profits in Europe to drop 6.4% year-on-year in constant currency terms.

On top of this, there were continued problems with Nigeria as operating profits from the group’s African operations dropped a whopping 62.8% in the six months to November. However, Nigeria’s economy has been in poor shape for years now with crippling inflation and a weak currency, so it’s little surprise that Cussons has suffered when converting Naira back to Sterling, its reporting currency.

That said, I see no reason for long-term investors to panic. These issues are external in nature and Cussons remains well-placed to benefit in the years to come from its high exposure to developing markets such as Nigeria and Indonesia. If UK consumer confidence rebounds and Nigeria’s economy recovers as oil prices rise, I reckon it could see a rapid turnaround in trading in the short term as well.

With great long-term growth prospects and a 2.9% dividend yield, I think PZ Cussons could be an attractive option for bargain-hunting investors.

The post Two defensive dividend stocks for bargain-hunting investors appeared first on The Twelfth Magpie.

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Ian Pierce has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK owns shares of PZ Cussons. The Motley Fool UK has recommended Reckitt Benckiser. 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.