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When markets turn choppy, I take comfort in the fact that some companies are built to withstand the worst of times. On the FTSE 100, there are several defensive giants that keep ticking along regardless of wider economic instability. These firms sell products that remain in constant demand, making their revenue streams more reliable than most.
Such stocks rarely make news headlines, but their resilience often makes them excellent anchors in a long-term portfolio.
My three favourites are Tesco (LSE: TSCO), Reckitt Benckiser (LSE: RKT) and Unilever (LSE: ULVR). Each offers a combination of steady growth, dividends and low volatility. Let’s take a closer look.
Tesco
As the UK’s largest supermarket chain, Tesco is about as defensive as it gets. People still need groceries during downturns and the company has managed to grow steadily — its share price is up 110% over the past decade. It also pays a decent dividend, currently yielding 3.3% with an eight-year track record of payouts.
The valuation looks fair too, with a forward price-to-earnings (P/E) ratio of 15.2. Strong cash flow provides a cushion, although margins remain thin and debt exceeds equity.
Even as a market leader, it still faces stiff competition from discount rivals such as Asda and Lidl. If high inflation continues to push budget-conscious shoppers towards these alternatives, Tesco could suffer.
But Tesco remains a top defensive stock for me, one that I believe should be considered as a key part of any UK portfolio.
Reckitt Benckiser
Reckitt Benckiser is a multinational that produces household names such as Dettol, Disprin and Harpic. These are the sort of everyday essentials that sell in good times and bad.
That consistency translates into impressive profitability. It boasts an operating margin of 21% and a solid 3.7% dividend yield with more than two decades of payments behind it.
Since 1995, the company has delivered annualised returns of 7.63% before dividends, which highlights just how resilient it is.
Of course, there are risks. Debt remains high following legal costs linked to the Enfamil baby formula case. Reckitt has also made questionable acquisitions in the past, most notably Mead Johnson, which analysts branded ‘the worst major UK acquisition of the last decade’.
Still, blips aside, Reckitt is worth further research due to its long-term prospects.
Unilever
The third name on my list is Unilever, the £100bn consumer goods titan behind brands such as Dove, Persil and Hellmann’s. With products found in kitchens and bathrooms worldwide, Unilever enjoys demand that remains relatively stable during economic downturns.
That translates into low share price volatility, a long history of dividends (over 20 years of consecutive payouts), and a 3.3% current yield. Unilever also posts enviable profitability with a return on equity (ROE) of 28.7%.
However, the balance sheet is stretched, with £27.4bn of debt outweighing equity and cash flow. Recent struggles have led me to be cautious, yet hopeful for signs of a turnaround. Still, due to the sheer strength of its brands, it remains worth thinking about as a defensive play — for now.
Final thoughts
Tesco, Reckitt Benckiser and Unilever may not be the most exciting stocks, but their resilience is exactly why I sleep better at night holding them.
They are unlikely to rocket upwards, but for an investor seeking steady dividends and low volatility, they offer solid defensive anchors in an uncertain world.