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Why I’d buy this FTSE 100 stock as it continues its 27-year record of dividend growth

Kevin Godbold
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The share price of international distribution and services company Bunzl (LSE: BNZL) is bucking the prevailing trend today and creeping up!

According to the share-focused website ADVFN, around 8% of all shares on the London stock exchange are rising today but a whopping 61% are declining. The remaining 31% are unchanged.

As I write, the market is weak with the FTSE 100 index down more than 3% since its opening level on Friday last week. Indeed, every share in my own portfolio shows red today.

The market likes the full-year figures

So, with the share price up around 3%, it appears that the market likes Bunzl’s full-year results report released this morning. And I find the figures to be reassuring. At constant currency exchange rates, revenue increased by 1% compared to the prior year and adjusted earnings per share rose 1% too.

But digging a little deeper reveals more good news. The operating margin ticked up from 6.7% to 6.8% and free cash flow grew by 10%. The company reckons cash conversion came in at 101%, which demonstrates profits are backed with powerful cash flow.

The directors continued the firm’s remarkable 27-year record of annually raising the total dividend by pushing it up by almost 2.2%. The thing I like most about Bunzl is its long record of rising cash flow and dividends. I keep a watch list of shares labelled ‘defensives’ such as Bunzl, along with the likes of GlaxoSmithKline, SSE, Britvic, PZ Cussons and many others.

Generally, I’m always looking to buy the shares of these companies when opportune moments arise, and Bunzl’s share price has drifted around 23% lower over the past year or so. I reckon the stock is worthy of my research time right now.

Consistent trading suggests a strong niche

With such consistent financial and trading figures, it’s no surprise that Bunzl has carved a niche for itself in a steady market. The firm supplies non-food and generally not-for-resale products to businesses, organisations, and sectors. We are talking about stuff that customer-organisations use themselves in the day-to-day running of their operations, such as chemicals, safety consumables, bandages, gloves, labels, films, grocery, packaging, and products for cleaning and hygiene.

The business operates internationally, with around 51% of adjusted operating profit coming from North America, 27% from continental Europe, 13% from the UK & Ireland, and 9% from the rest of the world. So, if you buy some of the company’s shares, you’re making a big bet on the health of the US economy.

And the forward-looking dividend yield of just over 2.6% for 2020 won’t be the biggest you’ve ever seen, but I like the way the dividend keeps on growing. Looking ahead, chief executive Frank van Zanten said in the report he expects ongoing challenging trading conditions ahead, but he believes Bunzl will continue to grow earnings because of its vibrant acquisition programme – the firm sees itself as a consolidator operating in fragmented markets.

I like Bunzl and would be more confident holding the shares into a general economic downturn than I would be holding out-and-out cyclical shares such as banks, oil companies and retailers.

The post Why I’d buy this FTSE 100 stock as it continues its 27-year record of dividend growth appeared first on The Motley Fool UK.

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Kevin Godbold has no position in any share mentioned. The Motley Fool UK owns shares of and has recommended Britvic and GlaxoSmithKline. 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.

Motley Fool UK 2020