The Best Reason To Buy Unilever plc

For long-term growth and steady income, Unilever plc (LON: ULVR) is hard to beat.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

unilever2Unilever (LSE: ULVR) (NYSE: UL.US) shares are up 10% over the past 12 months against just 3% for the FTSE 100 average, and that’s nice.

But it’s not such short-term fripperies that interest me. In fact, on that basis the shares are on a forward P/E of nearly 21 on full-year forecasts, and that’s some way ahead of the FTSE’s long-term average of 14. The predicted dividend yield, at 3.3%, is barely ahead of average, and there’s no earnings per share (EPS) growth indicted for 2014 either.

On those figures alone, Unilever is not a share to buy.

Trouncing the FTSE

But look back over the longer term, and we see significant outperformance.

Over the past five years Unilever shares are up 65% against not much more than half that for the FTSE. And over ten years, we’re looking at 150% for Unilever compared to 50% for the FTSE.

Looking closer during the stock market crash that started in mid 2007 and didn’t hit bottom until early 2009, Unilever shares fell considerably less than the index as a whole.

On top of that, while dividend yields haven’t exactly been smashing the FTSE average of around 3%, they have been rising ahead of inflation — and that’s vital if you want long-term income.

All of that, I think, shows Unilever’s key attraction for long-term investors — it’s reliable and safe. And it’s easy to see why.

Diversity

Unilever manufactures a huge number of products in the food, cleaning and personal care markets, and those are things that people just don’t cut back on in hard times. Lipton, Wall’s, Knorr, Hellman’s, Lux, Cif, Sunlight, Dove, Sunsilk, Flora and Domestos — they’re all there, together with many more. In fact, around a dozen of Unilever’s brands bring in annual sales of more than £1 billion each.

The firm’s other key strength lies in its global reach. In 2013, only around a quarter of turnover came from Europe, with a third from the Americas (including South America). The rest was from Asia, Middle East, Turkey, Africa, Russia… all over the world, in fact. So growing global prosperity will drive Unilever’s future growth too, and it will reduce its volatility due to more local economic problems.

And that reach is ever extending. At first-half time this year, Chief Executive Paul Polman told us that “we continue to invest for the long term with our programme to take our brands into new countries with the launches of Lifebuoy in China, Omo in Arabia and Clear in Japan.

The key…

He went on to say “We remain focused on achieving another year of profitable volume growth ahead of our markets, steady and sustainable core operating margin improvement and strong cash flow“.

And that sums it up for me — long-term growth ahead of the company’s markets.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft has no position in any shares mentioned. The Motley Fool UK owns shares of Unilever. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »