Why I’d buy this FTSE 100 dividend growth stock and never sell
There aren’t many London-listed shares I can honestly say I’d buy and never sell, but health and home hygiene consumer goods manufacturer Reckitt Benckiser Group (LSE: RB) is one of them.
This year, the firm restructured into two divisions, Health and Hygiene Home, after acquiring Mead Johnson Nutrition Company during 2017. Today’s third-quarter results report sent the shares lower, though, despite the headline that the firm is “On track for full-year targets.” Like-for-like growth in the quarter came in at 2% compared to the equivalent period last year, but overall growth took a 2% hit – down by £70m – because of a “temporary manufacturing disruption” at the firm’s European infant nutrition plant.
Moody Mr Market
I’m not surprised that the stock market has focused on the negative today. It’s the same story everywhere – good news is practically ignored and the slightest whiff of something less than positive and the market piles in for its over-generous pound of flesh by thumping share prices down. This market will have its correction, make no mistake about that!
Yet I’d suggest that market weakness is what you want if you are a buyer of shares to hold for the long haul. If you are in the business of accumulating shares rather than selling them, you want share prices and valuations to be as low as possible so that you get more for your money. Then, ideally, you want a great big speculative bubble that pushes shares and valuations as high as possible just before you sell, such as when you retire, maybe.
So I see today’s weakness in the share price as an opportunity for me to buy. The company said in the report that it is on track to meet its target and increase revenues by 14% to 15% of which like-for-like revenues should achieve a 2% to 3% increase. I reckon it is important to see growing revenues because profits can only keep on rising if the top line keeps growing as well. Sometimes firms make efficiency and cost savings that drive profits up while revenue remains static, but that kind of growth in profits can only go so far.
Strong brands shining through
Chief executive Rakesh Kapoor said in the report that the base Health and Hygiene Home businesses achieved 4% like-for-like growth in the quarter “against a backdrop of mixed market conditions.” He puts this down to the strength of the firm’s brands, innovation success and “early signs” of benefits from the recent restructuring.
Indeed, there’s a lot to like about Reckitt Benckiser and I reckon the firm still retains its ‘defensive’ characteristics, despite the recent volatility in the share price. The consumer goods space retains its attractions and we can see the benefits of being in the business in the company’s financial record – over several years there’s been steady growth in revenue, earnings, cash inflow and the dividend. The cash flowing into the business supports those escalating earnings well.
To me, Reckitt Benckiser would make a decent core holding in any long-term-focused portfolio and I think the stock is well worth your attention now.
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Kevin Godbold 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.
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