A couple of weeks ago, I discussed how private investors could learn to love market volatility byrecognising the importanceof building a diversified portfolio and buying shares in a number of large, resilientcompanies to sit alongside their more cyclicalholdings.
Events over the last few days have perhaps underlined how essential this is. So,lets considerthree stalwartsand ask whether they should form a core part of your portfolio forthe difficult periodweve now entered.
Powering ahead
National Grid (LSE: NG) is commonly regarded asone of the most boring constituents of the FTSE 100. The beauty of owning shares in the 37bn cap is that its monopoly over electricity provision means its share price tends to suffer less than other companies (and the main index) during periods of market panic. Need proof?Just look at its performancesinceBritains voted to leave the EU. Itsincreased in the two days of trading since the result was announced.
While some investors may be more concerned withprotecting their capitalright now, it cant be denied that the electricity network provideralso offers one of the safest yields in the FTSE 100. At just under 4.5% and covered by earnings, National Grid is a company to raiseincome investors spirits.
Some may quibble that a price-to-earnings (P/E) ratio of just over 16 makes the shares a bit expensive, particularly as our banks, airlines and housebuildersare now even cheaper to buy. While this may be true, its also a fact that no one knows how low the latter will fall. Rather than attempt to catch a falling knife, risk-averse investors may prefer to pay a little more for greater security.
Defensive demon
Unilever (LSE: ULVR) is, of course, a multinational consumer goods giant and not dependent solely on Europe for its profits. While UKpoliticians fret, this 93bn cap carries on selling Lynx deodorant, jars of Marmiteandpacks of Persil to the two billion people that use its products every day. This will continue regardless of what negotiations now happen between Britain and the 27 remaining members of the EU.
Given this, the performance of Unilversshare price since last Friday is unsurprising. Theyre upfrom 3,175p on the eve of the result to 3,365p today as investors dump their more speculative holdings for the relative sanctuaryoffered by the company.
While its 2.8% dividend yield looks fairly average alongsidethe payouts offered by National Grid, it is arguably just as secure. And when world markets do settle down, Unilever has the global reach to benefit.
Dividend champion
TheFTSE250 index slumped dramatically on Friday and Monda,ydue to a number of its companies being heavily dependent on earnings from the UK or Europe. This is not to say, however, that the index is devoid of resilient companies with largerinternational exposure.Halma (LSE:ULVR) is anexample.The 4bn companys products detect hazards, look after the environment, protect life and improve health. Thanks to growing health and safety legislation, the companys earnings are anything but cyclical.
Halmas share price reacted tothe recent period of panic with a slight stumble followed by a shrug of itsshoulders. Itsnow recovered to941p. Before Fridays result, it was at 965p.Investors may baulkat how expensive shares in the company are a P/E of 35but I would argue that 37 consecutive years of dividend increases of 5% ormore speaks for itself.
Keep calm and carry on
So, there you have it: three great businesses to own in difficult times. But have prospective investors missed the boat? That’s doubtful, given the likelihood of further volatility in the stock market for some time to come. Indeed, I’m inclined to add more of these stocks to my own portfolio should their prices fall.
Investing can be a scary business. In market panics, it’s natural to doubt what the best course of action might be. However, here the Motley Fool’s philosophy is clear: Focus on buying quality companies with dependable earnings and hold these shares for the long term.
That’s why the experts at the Motley Foolhave produced a special FREE report highlightinga group of firmsthat, while not immune to market dips, offer more securitythan most and are highly likely to be able to overcome any short-medium term setbacks.
Twoof these companies have been mentioned above. What are the other three?
Click here nowto find out!
Paul Summers owns shares in National Grid, Unilever and Halma. 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.
