Despite the FTSE 100 being a UK-based stock index, it’s filled with global giants. But internationally, many developed nations face slowing growth. Risks of recession are growing amid rising energy costs, high inflation, and climbing interest rates.
Many central banks are now trying hard to reduce surging prices, even if it results in a weaker economy. That creates a difficult environment for many stocks, in my opinion.
Nevertheless, in the current climate, there are still several FTSE 100 shares that I’d like to own. I’d focus on defensive companies with earnings that are somewhat protected from an economic downturn.
Should you invest £1,000 in BAE Systems right now?
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8% dividend yield
For instance, Imperial Brands (LSE:IMB) is a consumer defensive company that owns strong brands. It sells cigarettes and vape products, both of which tend to be relatively protected from a slowing economy.
What I really like about Imperial is its 8% dividend yield. Not only has it got one of the largest dividends in the FTSE 100, it’s a consistent dividend-payer. With a 25-year track record of consecutive payments, Imperial has proven its reliability. As such, I’d consider it to be one of the best dividend shares in the index. Of course, dividends are never certain.
I need to bear in mind that attitudes to smoking have been changing, and long-term trends are shifting. Imperial will need to adapt effectively to keep up, but so far it appears to be doing so.
A FTSE 100 defence giant
Another defensive FTSE 100 giant is British global defence company BAE Systems (LSE:BA.). It provides some of the world’s most advanced security systems across land, air, sea, and cyberspace.
BAE’s shares have been in demand in recent months. Over the past year, its share price has climbed by an astonishing 64%. The war in Ukraine has driven many countries to consider raising their own defence spending.
In demand
For BAE, rising demand for its products is in sharp contrast to many other British businesses that are facing slowing demand.
Just this week, the UK government announced that it will spend 2.5% of gross domestic product (GDP) on defence by 2030. By my calculations, that totals an extra £55bn of spending versus the previous pledge.
As the UK’s largest defence contractor, BAE would likely benefit, and its earnings could remain supported for many years. In fact, it could benefit many defence stocks.
That said, the US is a much larger market for BAE. One element to watch includes defence budgets that are driven by US debt levels and spending priorities.
BAE displays several characteristics that make it a high-quality share, in my opinion. For instance, it operates with a double-digit return on capital employed and a double-digit profit margin.
To top it off, it offers a 3.2% dividend yield. That’s a lower yield than the average FTSE 100 share, but when combined with growing earnings it becomes much more appealing.
All things considered, I’d buy these shares. Especially as the risks of recession climb.
