One FTSE 100 stock I am considering adding to my holdings is Bunzl (LSE:BNZL). Here’s why.
Outsourcing and distribution
Bunzl is one of the largest distribution and outsourcing firms in the world. It has operations that span across the Americas, Europe, Asia, and the UK & Ireland. Bunzl’s products can be used across a multitude of industries such as healthcare, food service, retail, and cleaning. Some of its prominent products include packaging and general cleaning products such as gloves and disposable liners.
As I write, Bunzl shares are trading for 2,747p. At this time last year, the shares were trading for 2,350p which means the shares have returned 16% over a 12-month period.
Potential risks involved
Bunzl has benefitted from the pandemic as the rise of Covid-19-related equipment orders such as masks, gloves, and other cleanliness products boosted its balance sheet and performance. There is every chance that if the pandemic slows, sales of these products slows down also, affecting future performance and returns.
Many FTSE 100 stocks that specialise in consumer products have been affected by rising interest rates, which has led to rising costs. This means the rising costs of raw materials, some of which will be essential to Bunzl’s products, could eat into its profit margins. Other macroeconomic issues such as supply chain issues could also hinder Bunzl’s progress, performance, and returns.
A FTSE 100 stock I’d buy
Bunzl has a good track record of recent and historic performance, although I do understand that past performance is not a guarantee of the future. Looking back, I can see revenue and gross profit have increased year on year for the past four years. Coming up to date, Bunzl released a pre-closing statement last month for the year ending 31 December 2021. It said that revenue for 2021 should increase compared to last year by between 2% and 7%. Furthermore, it reported recent acquisitions had been successful and contributed towards further revenue growth.
Bunzl is also a consistent dividend payer. These dividends can make me a passive income. The current yield stands at 2.5%. It is worth noting that the FTSE 100 dividend yield average is 3%-4%. Dividends can be cancelled, however.
Finally, Bunzl operates in a burgeoning growth market and caters to many industries with its essential products. In addition to this, it has one eye on growth which I like. This can be demonstrated by Bunzl’s numerous acquisitions, especially over the past two years. I like it when a company is performing well but also investing to grow in the future, by acquisitions.
Overall Bunzl is a solid FTSE 100 stock, in my opinion. I would add the shares to my holdings at current levels. It possesses a good track record of performance, pays a dividend to make a passive income, and has one eye on the future to continue its growth trajectory.
Jabran Khan has no position in any shares mentioned. The Motley Fool UK has recommended Bunzl. 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.
