We are in unprecedented times, with the combination of zero or near-zero interest rates, historically high corporate and government debt and COVID-19 lockdowns throughout the world. Despite this, the stock market has rallied materially from the lows last Monday. Our concern is the demand destruction on the consumer side, as this accounts for two thirds of GDP and was an important catalyst in propelling the great bull market of 2009-2020.
Through this volatility, our game plan has remained: 1) maintain a diversified portfolio of high-quality, well managed companies that have the free cash flow and balance sheet to keep the lights on and the doors open; 2) don’t be afraid to hold cash; and 3) maintain weightings across and within asset classes.
UNILEVER (UL NYSE)
Most recent purchase on March 5 at US$56.76.
Unilever is a defensive and global consumer staple with operations in 190 countries and over 2.5 billion customers worldwide. Business lines are almost equally split across food/drink (Hellman’s), home care (Sunlight) and beauty care (Dove Soap). Geography is evenly split across developed and emerging economies. The dividend has grown by just under 10 per cent over the last 10 years and is currently yielding about 4 per cent.
TELUS (T TSX)
Most recent purchase on March 5 at $51.21.
Connectivity is essential today, especially considering the number of those working from home. Telus grew both wireless and wireline segments through the Financial Crisis. It issued $1.5 billion in stock at a split adjusted price of $26 in February. Get paid to wait, with a dividend yield over 4.5 per cent.
Sell-side banks continue to call for V-shaped recovery with Q2 GDP to fall by over 25 per cent before recovering sharply in Q3 to finish the year at low negative single-digit GDP growth. Investors should consider holding cash to opportunistically purchase quality names if the demand does not immediately return and recovery is more prolonged than expected.