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I believe outsourcing and distribution business Bunzl (LSE:BNZL) is one of the best stocks to buy on the FTSE 100 index.
Bunzl is the largest value-added distributor in the world in its target markets with operations throughout the world. Some of its most prominent products include packaging and general cleaning products such as disposable liners and gloves.
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As I write, Bunzl shares are trading for 3,068p. At this time last year, the shares were trading for 2,479p, which means the shares have returned 24% over a 12-month period.
A FTSE 100 stock with risks
Bunzl saw profit levels drop due to Covid-19 as sales slowed during the height of the pandemic. The virus has not disappeared and restrictions in China, as well as other parts of the world, could have a knock-on effect for Bunzl’s progress and performance. If profit levels are affected once more, shareholder returns could be affected as well.
Rising costs attributed to macroeconomic factors such as soaring inflation is putting pressure on margins for firms like Bunzl. These profit margins being squeezed could affect the bottom line, and in turn shareholder returns. In addition to this, the ongoing supply chain crisis could also hamper sales too. It is worth noting Bunzl is not alone in suffering from these issues. Many other FTSE 100 stocks face similar headwinds.
Why I like Bunzl shares
Bunzl has a good historic track record of performance. I can see revenue has increased year on year for the past four years. I do understand past performance is not a guarantee of the future, however.
Coming up to date, Bunzl released its annual financial report for the year ended 31 December 2021 just last month. The results made for excellent reading, in my opinion. Revenue and profit increased by 7% and 2.8%, respectively, compared to 2020 levels. Net cash increased and a final dividend of 57p per share was declared, which is 5% increase from last year.
Speaking of dividends, Bunzl is generally viewed as a good FTSE 100 dividend stock. Since 2004, Bunzl has returned just under £2bn in dividends. Bunzl shares could help me, as a passive income seeker, and boost my passive income stream.
Finally, Bunzl is a business that looks to grow organically and through acquisitions too. I like when a business is able to buy complementary businesses to enhance its own offering. This shows ambition, a plan, and willingness to grow. If a business is growing, I’d expect to see my returns grow too.
My verdict
At current levels, Bunzl shares sport a price-to-earnings ratio of just over 22, which is higher than the FTSE 100 average of 15. Bunzl shares are coveted by investors and I believe this is clear based on its premium price.
I’d happily add Bunzl shares to my holdings but wish I had done so sooner. If there were a stock market correction, a bit like the one we saw a couple of months ago when many FTSE 100 stocks dipped, I’d snap up shares in Bunzl at a cheaper price.
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