One cheap FTSE 250 income stock I’d buy right now
The Motley Fool
Published Jul 03, 2020 17:10
Updated Jul 03, 2020 17:40
One cheap FTSE 250 income stock I’d buy right now
Tate & Lyle (LSE: LON:TATE) is a well-known and well-run brand that specialises in ingredients and solutions for food and beverages. The company is taking an increasingly scientific approach to product creation, and many businesses are reliant on its specialist products. I believe Tate & Lyle to be a cheap FTSE 250 income stock, and I’ll explain why.
As a consumer staples company, any secondary waves of Covid-19 should have a minimal detrimental effect on future revenues. So far, the company has weathered the crisis very well and has refused to furlough any employees, demonstrating the strength of the business. A second wave may even boost revenues, because during the first lockdown period in the UK sales of baking goods increased, and TATE should have profited from this (and could do so again).
Its defensive nature also means that TATE will perform better than the index in the current recessionary environment, which could go on for months if not years. The food and beverage solutions business is also geographically diversified, preventing reliance on a single market, further strengthening revenues. The company also has low levels of debt, which leaves it with options if the economic conditions worsen significantly. These factors mean that Tate & Lyle is an excellent defensive stock to protect your portfolio from the unpredictable and volatile markets.
The dividend yield is also healthy at 4.4% and historically stable. It has grown consistently over the past decade and offers a higher yield than competitors. Tate & Lyle should also have the continued revenue to sustain this dividend going forward even in a recessionary environment. This inflation-beating dividend is highly desirable as many companies have cut or even ceased dividend payments due to the current crisis. While it may offer a lower yield than other cheap FTSE 250 income stocks, Tate & Lyle’s long and stable record of dividend payments makes it highly likely that it will remain unchanged.
Finally, Tate & Lyle has demonstrated its defensive nature this year. It is currently down nearly 13% since January. While in the same period, the FTSE 100 is down 18% and the FTSE 250 is down 21%.
TATE’s significantly smaller loss demonstrates its defensive nature resulting in reliable performance against the index in this part of the business cycle. This performance should continue during this uncertain period. TATE also offers better long-term upside because it has a lower P/E ratio than its competitors and the broader market, indicating that it is currently undervalued. Therefore, I believe the current price offers an opportunity to buy a tremendous defensive stock at a discounted rate.
Tate & Lyle is trading at a great price and is a dependable company that I think would be a perfect defensive addition to any portfolio. While TATE will probably not skyrocket in the next few years, it offers an inflation-beating dividend and should remain stable during an uncertain and possible tumultuous economic period. This pick won’t make you a millionaire, but the cheap FTSE 250 income stock offers stable and reliable growth with a healthy dividend, which is needed in a balanced portfolio.
Get The App
The post One cheap FTSE 250 income stock I’d buy right now appeared first on The Motley Fool UK.
Charles Heighton has no position in any 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.
Motley Fool UK 2020
First published on The Motley Fool
Written By: The Motley Fool
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.