There aren’t many FTSE 100 stocks that can boast of increasing their dividend 42 years in a row. Halma (LSE:HLMA) can, but should I buy shares for my portfolio at current levels?
Defensive traits
Halma develops and sells products that enhance public safety and minimise hazards. It has six business divisions. These are the development and supply of visual warning systems, toxic gas and smoke detectors, electronic alarm systems, and water leakage detectors. Based on the sector it operates in, I believe it has excellent defensive investment traits.
As I write, shares in Halma are trading for 2,991p. A year ago, shares were trading for 2,194p, which is a 35% return in 12 months. The Halma share price is up 17% in the current year to date, which is higher than the FTSE 100 index as a whole for the same period.
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Halma’s current share price gives it a price-to-earnings ratio of over 50 which is a bit high for my liking. The only time I would consider a stock valued so high is when it is a seriously quality stock I cannot ignore. Halma is one such stock hence my serious consideration of buying shares.
Why I like Halma
- Halma’s performance of late as well as historically is good. I understand past performance is not a guarantee of the future but I use it as a gauge when reviewing investment viability. Prior to 2021 results, which were affected by the pandemic, revenue and profit increased year on year for three years. Halma’s half-year results, released last week, were excellent too. Revenue increased 19% compared to the same period last year. Pre-tax profit jumped a huge 74%. Full-year guidance is also on track to be achieved despite noted macroeconomic challenges, such as supply chain and labour market issues.
- The FTSE 100 dividend yield average is 3%. Halma’s yield is less than 1%. So why am I buoyed by Halma as a passive income option for my portfolio? Probably because it has increased its dividend payout by at least 5% for the past 42 years.
- Halma is a global business with a vast footprint. It is also in a growing sector and has good defensive qualities. Public safety products in the home and workplace will continue to grow as technology does and will always be a priority for people and companies in my opinion.
FTSE 100 stocks have risks
Halma may have kept full-year guidance in place despite mentioning macroeconomic pressures that could affect it but these same pressures are still credible risks to consider. The current supply chain crisis and labour market issues, as well as rising inflation could affect the bottom line and investor sentiment if performance is affected. Furthermore, at current levels, Halma is a bit pricey despite its quality.
Right now I would add Halma shares to my portfolio but they are a tad expensive. The old adage goes: you get what you pay for. I believe I would be paying for a quality FTSE 100 stock that would make me a passive income. I would expect Halma to be able to fend off any issues it might face such as those noted and to continue doing this for the foreseeable future. If the Halma share price were to lower a bit, I would add further shares to my portfolio too.
