I have a list of my best stocks to buy now that I constantly review, update, and monitor. One stock from that list is Reckitt (LSE:RKT). Here’s why I’d add the shares to my holdings now and keep them for a long time.
Essential consumer goods
Reckitt is one of the largest consumer goods companies in the world, supported by approximately 43,000 employees. It is the home of many hygiene, health, and nutrition brands. Some of its best known brands include Dettol, Nurofen, Veet and Vanish.
As I write, Reckitt shares are trading for 6,205p which is very similar to this time last year, when the shares were trading for 6,300p. Reckitt shares are up 13% at current levels from November when they were trading for 5,471p.
Risks involved
Reckitt may be one of my best stocks to buy now but it still has risks. Firstly, the interest rate rise, causing a surge in raw materials costs has impacted profit levels. This could impact longer term performance and any shareholder returns too.
Reckitt has managed to grow its business through acquisitions and organic growth. The former is a worry for me as it has made mistakes in the past. In 2017, an ill-fated acquisition of an infant formula business from Mead Johnson cost the firm $16.6bn. This ended up a mistake that led to financial write-offs and the sale of most of the business. Acquisitions can go wrong and end up costing firms like Reckitt lots of money.
Why RKT is one of my best stocks to buy now
Reckitt’s brand power, position in its respective market, and current state of that market fill me with confidence. Collectively, Reckitt’s brands form a very strong company that provides millions of consumers essential goods and makes the company a lot of money. In addition to this, the health, hygiene, and nutrition market is booming at the moment. With demand for such products at record levels, Reckitt is primed to benefit from this, in my opinion.
Reckitt has a good track record of performance, although I do understand that past performance is not a guarantee of any future performance. Looking back, I can see revenue and gross profit have increased year on year for the past four years. Coming up to date, a Q3 update released at the end of October was promising too. Like-for-like revenue increased by 3.3% compared to the same period last year and full-year guidance should see revenue increase for another successive year too, according to its forecasts.
Reckitt is a dividend stock too, in my opinion. It currently sports a dividend yield just below 3%. The FTSE 100 average yield is 3%-4%. It has a good record of payment but dividends can be cancelled, of course.
Finally, Reckitt has an eye on the future and growth. It has recently constructed a state of the art R&D and production facility. It has also committed to spending £1bn in developing new products in the coming years. These growth initiatives are supported by a robust balance sheet.
Overall, Reckitt is still firmly on my best stocks to buy now list. It has a good track record of performance, pays a dividend to make a passive income and is investing for the future. I would buy the shares for my holdings at current levels.
Jabran Khan has no position in any shares mentioned. The Motley Fool UK has recommended Reckitt plc. 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.
