In times of trouble, you find out who your friends are. The same goes for investors. In these uncertaintimes two FTSE 100 stocks in particular have shown their mettle. Say hello to our old comradesReckitt Benckiser Group(LSE: RB)andUnilever(LSE: ULVR).
At time of writing, the benchmark FTSE 100 index is 15% lower than it was ayear ago. Over the same period, Reckitt Benckiser is up more than 10%, and Unilever is up nearly 4%. Over five years theyre up 85% and 55%, respectively, while the indexhas gone nowhere over the same period. They say past performance is no guarantee of future returns, but in the case of these two stocks, its a pretty good signal.
For years I admired both companies for their resilience and staying power, but was wary of their valuations. Typically, they traded at 20 times earnings or more, which I thought was a bit pricey. Now I understand that isnt the case. Their high valuations have proved theirdurability. Today, Reckitt Benckiser trades at more than 25 times earnings, while Unilever is on a forecast P/E of more than 20 times for December. Because theyre worth it.
The last time you could get either of these stocks at a worthwhile discount was after Black Monday in August last year. The current sell-off isnt a buying opportunity, as both have withstood this years meltdown, but it is a reminder of their staying power.
The other factor that made me wary of the stocks were theiryields, which are typically well below the FTSE 100 average. Right now, Reckitt Benckiser yieldsa paltry 2.28% and Unilever yields 3.03%. The FTSE 100 as a whole deals yields closerto 3.8%. Butin todays crazy market, that low yield is a sign of success, whereas the double-digit yields at BHP Billiton and Royal Dutch Shell are a sign of distress. Also, management is committed to progression. Reckitt Benckiser hiked payouts every year for the last decade, while Unilever has hiked every year since 1995, and hasnt cut its dividend since 1966. Annual growth is 7.57%. The low yield is largely a consequence of the high share price.
China crisis, what crisis?
Perhaps the most impressive thing about theirrecent success is that it has endured through what looks like the early stages of a Chinese hard landing. Both companies were expected to grow fat on the Chinese consumption boom, as the newly-minted middle classes rushed to buy Western-branded householdgoods. Thisshouldsuggest theyll be vulnerable in a downturn, but that hasnt been the case. Sales appear to be holding up, helped by the fact that the Chinese authorities are shifting their economy towards consumption, and away from industry and infrastructure, playing into both companies hands.
You could wait to see if market contagion ultimately afflicts Reckitt Benckiser and Unilever, but dont hold your breath. These are volatile times, but you can get by with a little help from your friends.
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Harvey Jones has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Unilever. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.