In times of uncertainty, investors like to have defensive stocks in their portfolio. Even though some market participants consider themselves to have shorter time horizons, we believe defensive stocks have a lot to offer.
Today, we cover 5 stocks that should be able to do reasonably well even in bad times as they tend to focus on products that most people need and can afford.
#1 Guangdong Investment (0270.HK)
Guangdong Investment Group (0270.HK) owns essential utilities such as the Dongshen Water Supply Project, which supplies most of Hong Kong’s water. The revenue from water supply to Shenzhen and Dongguan has increased steadily, rising by 12.5% year-on-year in 2018, a strong driver for revenue growth. The company also invests in other essential utilities such as sewage treatment, water distribution, toll roads, power plants, and bridges across mainland China in addition to property and department stores.
Nearly two-thirds of the company’s adjusted operating profit comes from its water business and another 10% from its infrastructure investment business. Due to the essential nature of sewage and water distribution, the company’s cash flows are fairly predictable. Regardless of the political situation, everyone living within Hong Kong will still need water and sewage treatment. Guangdong Investment’s dividend for the past 8 years grew at a compound annual growth rate of over 17%. Its dividend yield is around 3.3%
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The real estate business has become another highlight. For example, its Tianhe City shopping center in Guangzhou has an average occupancy rate of 99. 9%. In addition, many properties in Guangdong are located in the Dawan District and they can benefit from the rapid development of the area.
Two of its property projects in Buxin and Wanbo are expected to generate cash flow in 2020 and 2021, which will enable the company to invest in more water resources projects. Guangdong Investment has been recording increasing dividends, nearly doubling from 28 cents per share in 2014 to 54 cents in 2018, making this stock more popular with conservative investors. While growth of the company is modest, investors could benefit from upside in its real estate business.
#2 Cafe de Coral Holdings Limited (341.HK)
Founded in 1968, Cafe de Coral Holdings Limited (341.HK) is one of Asia’s largest publicly-listed restaurant groups. The company has over 450 outlets in Hong Kong and mainland China in the form of quick-service restaurants, casual dining chains and institutional catering.
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For its financial year ended March 2019, profit attributable to shareholders rose over 28% year-on-year to HKD 590 million, even though revenue only went up 0.8% during the same period to HKD 8.5 billion. The company is also generous with dividends. Based on its share price of HKD 21.60, it has a trailing yield of nearly 3.9%.
Over the years, Cafe de Coral has been one of the most consistent and fastest-growing companies. The chart above shows the group’s earnings per share (EPS) and net profit trends since 2000. Despite the occasional dip, there has been a clear upward trend in group’s EPS and profit over the last 19 years.
#3 Sino Biopharmaceutical Limited (1177.HK)
Sino Biopharmaceutical has seen strong growth in its share price over the past years. One should note that the pharmaceutical industry continues to grow given the aging population and increased demand for higher quality health care. The company has a broad range of products in the market, many of which are new. The company has also demonstrated strong R&D capabilities which would give assurance to long term investors.
#4 Sands China (1928.HK)
Sands China saw its third-quarter results flat year-on-year with a net income of USD 454 million. Nevertheless, the company is a leader within the mass market gaming segment in Macau. The company also is also known for providing facilities for meetings, incentives, conferences, and exhibitions. These provide a diversifying source of revenue. With a dividend yield of nearly 5%, this is a stock worth serious consideration.
#5 Vitasoy International Holdings Ltd (345.HK)
Vitasoy International has seen strong growth in recent years. China is the fastest-growing market for the company. There is still room for growth as penetration in China is still low. Vitasoy’s products are quite affordable and therefore is resistant to economic downturns. The company’s dividend payout ratio is over 60%, a respectable figure which still allows reinvestment into the business.