With FTSE 100 fast-moving shopper items enterprise Reckitt Benkiser (LSE: RKT), a excessive dividend yield’s arisen due to a troubled underlying enterprise.

Even rebranding its buying and selling identify to simply Reckitt and altering its inventory ticker hasn’t stopped the decline within the share price, because the chart exhibits!

The corporate bumped into issues beginning in 2017 after making the large acquisition of Mead Johnson Diet – a US-based producer of child milk formulation.

The transfer was a number of steps away from the agency’s beforehand established technique of constructing smaller, bolt-on acquisitions. As I see it, the lesson for all traders right here is to not put too many eggs in only one basket. Diversification could be key when constructing each companies and inventory portfolios.

A steady dividend stream

Nonetheless, regardless of the well-reported challenges skilled by Reckitt’s enterprise over the previous few years, it’s managed to maintain up the shareholder dividend funds.  

The administrators held the fee flat in 2020 and 2021, in the course of the pandemic. But it surely rose in 2018, 2019, 2022 and 2023. I feel that’s fairly an achievement and speaks volumes concerning the underlying power of the enterprise.

The fast-moving consumergoods sector has all the time been searching floor for dividend traders. Names like Unilever, British American Tobacco, Britvic and Diageo typically function in dividend-focused portfolios.

It’s the defensive nature of operations that’s so engaging. Corporations working within the sector are usually extra resilient to the ups and downs of the final financial system than cyclical outfits. That usually results in steady incoming money circulate, which is sweet for paying constant dividends.

Sturdy manufacturers typically again up the choices of those defensive companies. Within the case of Reckitt, best-sellers embody Cillit Bang, Durex, Nurofen, Vanish and others.

However such companies are usually prized by traders and their valuations could be excessive. Nevertheless, Reckitt’s troubles have made the inventory look low-cost in comparison with others within the sector. So if the worst is behind the enterprise as hoped, it could possibly be price doing additional research now with a view to purchasing a few of the shares.

Earnings development forward

Metropolis analysts predict advances in earnings per share round 7% each this yr and subsequent. The dividend appears set to chip up by a number of % annually too. In the meantime, the corporate issued a optimistic outlook assertion in April saying the enterprise is heading in the right direction to fulfill its full-year targets.

After all, all companies and shares include dangers in addition to optimistic potential. Reckitt’s already demonstrated its capability for making strategic missteps and will achieve this once more sooner or later. In the meantime, a cheap-looking valuation hardly ever saves shareholders from shedding cash when a enterprise hits hassle.

Nonetheless, with the share price close to 4,442p, the forward-looking dividend yield for 2025 is round 4.7%. And I see that stage of revenue as engaging from a restoration and development story like Reckitt.