The ASX300 is up around 10% since this time last year, not including dividends. And with most economic data positive, the outlook for company earnings is solid.
But it won't always be smooth sailing. We'll eventually hit a few bumps in the road and Australia's recession-free run will come to an end. I'm not calling it anytime soon, but that's just a reality investors have to face.
When that time comes, I don't want to be holding companies on expensive valuations with high growth expectations already factored into the share price. I'd rather be holding good quality companies with more reliable earnings, trading on sensible valuations. Here's two that fit the bill…
Orora Limited (ASX: ORA)
Making cans, bottles and boxes is pretty boring stuff. The upside of that is, these products are in continuous demand throughout the cycle. So packaging companies like Orora and Amcor Limited (ASX: AMC) have earnings streams which are more defensive in nature.
In the last 12 months, Orora grew earnings-per-share by 11.5% and boosted the dividend by 13.6%. The company is a steady, reliable grower and with shares trading at around 19 times earnings, it looks like good value. The dividend yield is 3.9% partly franked.
Viva Energy REIT (ASX: VVR)
This property trust owns over 400 service stations around the country, almost all are leased to Shell Coles Express. The portfolio has an average lease expiry of 13 years and 3% per annum fixed rental increases.
The portfolio is 100% occupied and further acquisitions are likely in the future. With a blue-chip tenant, mandated rent increases, long lease expiries, backed by some valuable real estate, the downside is limited.
Management has provided guidance for a distribution increase of 3% – 3.75% this year. Shares in Viva Energy REIT currently trade on a forecast yield of 6.3%.
Foolish takeaway
Both businesses are trading at reasonable valuations right now and each has earnings with defensive qualities. While they aren't as popular as some high-flying stocks today, that could well change in the future. Should we hit a rough patch in the economy, people will likely flock to shares with reliable earnings streams once again.
