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.
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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