Saturday, March 8, 2014

Dividend Growth Investment Unilever



 The first investment of March was the widely known Unilever (UL) (ULVR). It is a consumer goods company, which is one of my favorite industries for long-term investors. Because everyone needs their goods and implicitly trusts their brands, you can count on their resilience to withstand financial crisis and other headwinds. Moreover, while the sector might be disrupted by technology in the future, it won't be made redundant by it, making me extra comfortable with these long-term bets.

My favorite companies in this space, both brand-wise and performance-wise are Unilever and Procter and Gamble (PG). Just like everyone, I see Procter and Gamble as a core holding and would like to open and grow a position as soon as possible. However, I would say that Procter and Gamble is trading at a very fair valuation, which makes it an interesting buy, but if I can find great quality at a cheaper price somewhere else, that would be even better.


Unilever is essentially an almost 100 year company that you could consider the European version of Procter and Gamble. Their brands have a very strong market position and are widely appreciated. You probably use some of them at home:


Even though it has half the market cap of PG, it has been growing at a faster rate, and was incredibly nimble in it's entrance and expansion into emerging markets resulting in more than half of its sales originating in those markets. Also, one of the reasons I am so keen on UL is because even though they have a very strong emerging markets position, they are very wisely diversified all over the world. Their worldwide sales distribution is very balanced:



Unilever had an impressive run in the latest years with an average yearly return on equity of 30%, acceptable debt, and sports a very healthy P/B of 5.86, which I would consider low considering their high ROE.

I found the LSE listing of Unilever (ULVR to be particularly good for me, specially because I am using the equivalent of a US IRA and so I can have this holding in a tax-free environment. So I got the following deal, with which I am pretty happy with:

Stock Price: 40.13$ (23.99£)
Dividend Yield: 3.7%
Dividend Raise Streak: 15 Years
Typical Yearly Dividend Growth (5yr): 7%

The payout is at roughly 60%, and while that is isn't ideal, I believe it is pretty acceptable, especially considering the value that is coming with this current stock price.

4 comments:

  1. I like UL as well. I missed out when it drifted down into the high 30's. I would like to add more PG and start a position in UL pretty soon. They are both great companies.

    Best of luck with your future investments!

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    1. Hi My Dividend Pipeline,

      Thanks for stopping by!

      I believe there is no going wrong with companies like PG or UL. For me, both trading at fair value at the moment, with UL still being at a decent price. One thing that I am looking forward to is for their Q1 results, I believe they will be lower than 2013 Q1 because of late easter this year. That will cause a small dip that might provide a buying opportunity.

      I also took a look at your blog, you're already having great dividend income at the moment, you're almost on your goal of 1000$/month. That would be my goal after I reach 500$/month. It's nice to see so many of us following this approach, helps us inspire and learn from each other. I added your blog to my blogroll.

      Looking forward to see you reach 1000$/month

      Best Regards!

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  2. I really like UL and should have added more when it dipped in the upper $30's. I was able to initiate a position but didn't get a chance to average down. I love that it's a consumer staples company with lots of exposure to the developing and emerging markets. That really complements PG and I expect both to do quite well over the long-term.

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    Replies
    1. Hi Passive IncomePursuit,

      I also think that they both complement each other, specially because apart from certain product categories, they don't compete as much as most people tend to assume, they also move in different spaces. Looking forward to a small dip to add PG to my portfolio!

      Cheers!

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