There are a handful of FTSE 100 dividend stocks that stand out as defensive investments in the current market environment. As such, these shares could be attractive additions to your portfolio today, if you’re looking for investments to avoid the market meltdown.
United Utilities Group
United Utilities Group (LSE: UU) appears to be a great haven in stormy waters. As the rest of the market has slumped, shares in United have stayed relatively buoyant, which stands testament to the group’s defensive nature.
While analysts are forecasting a mild decline in the group’s earnings per share over the next two years, the dividend looks safe. The stock currently supports a dividend yield of 4.1%, and the distribution is covered 1.4 times by earnings per share.
Unfortunately, the stock doesn’t come cheap. It’s currently dealing at a price-to-earnings (P/E) ratio of 17.7. That might look expensive, but because this is one of the largest water providers in England, it could be a price worth paying.
Indeed, as United owns most of the water infrastructure in the North West of England, it’s unlikely a competitor will ever emerge to challenge the group. Doing so would cost tens of billions of pounds and capital spending and would take decades to replicate.
As such, it looks as if United can continue to provide investors with a steady income stream for many years to come.
National Grid (LSE: NG) offers similar defensive qualities. The company owns and operates the vast majority of the UK’s electricity infrastructure. Replicating this network would also cost tens of billions and take years — that’s assuming regulators would allow it.
As a result, National Grid has a tremendous competitive advantage, which makes it a great income stock. At the time of writing, shares in the infrastructure operator support a dividend yield of 4.6%. The distribution has increased at a compound annual rate of 0.6% over the past six years.
The stock also trades at a premium multiple. It’s dealing at a P/E of 17.2, around 30% higher than the rest of the market. Still, considering its defensive nature, this seems to be a price worth paying. After all, National Grid is one of the most defensive investments in the UK.
The shares are virtually unchanged over the past two weeks. That stands testament to the defensive nature of the business.
Aerospace and security company BAE Systems (LSE: BA) has similar attractive qualities to National Grid and United.
The coronavirus outbreak is unlikely to cause governments to reduce spending on defence. The epidemic might disrupt the company’s operations, but its order book should remain robust.
Therefore, the group should be able to recover from any disruption in the near term relatively quickly. Other companies could face insolvency if the current business environment prevails for an extended period.
As a result, the stock appears to be an attractive investment to avoid the market meltdown.
It currently supports a dividend yield of 4% and trades at a discount valuation of just 12.6 times forward earnings. That’s below the group’s long-term average, which sits in the mid-teens.
The dividend payout is covered twice by earnings per share, which suggests it’s secure for the time being.
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Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.
Motley Fool UK 2020