Rely On Reckitt Benckiser Group Plc And Unilever plc To Deliver The Goods In Today’s Troubled World

Harvey Jones reckons that Reckitt Benckiser Group Plc (LON:RB) and Unilever plc (LON:ULVR) should help investors clean up in future

| 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.

If you can’t rely on the Bank of England, who can you rely on? Those who took governor Mark Carney’s contradictory pronouncements too seriously will be all of a tizzy today. The unreliable boyfriend has struck again. Weeks after dropping seductive hints about a base rate hike in the near future, Carney has backed away from any immediate commitment, the little tease. Savers hoping to get a better rate on cash have once again been left standing embarrassed at the altar.

Cut And Run

Of course you can’t put all your faith in FTSE 100 stocks either. As investors in companies as varied as Aviva, BP, Centrica, Barclays, Lloyds Banking Group, Standard Chartered, Tesco and others have discovered to their cost, profits can fall, and dividends can be cut or cruelly dumped. There are no guarantees in life, or investing. But some companies are more reliable than others.

I’m particularly thinking of household goods giants Reckitt Benckiser Group (LSE: RB) and Unilever (LSE: ULVR). Their 10-year performance charts both show a steady upward sweep, with only a few brief hiccups along the way. Over five years, they have grown 80% and 50% respectively. The FTSE 100 as a whole is up just about 10% over the same period.

Household Favourites

That’s a heady combination of defensive investment and stock market out-performance, a combination that isn’t easy to find. My major quibble when examining these two stocks over the years is that they are typically expensive, often trading at more than 20 times earnings. But as these past performance figures show, that was a price worth paying.

Both stocks are still pricey today, with Reckitt Benckiser perhaps a little too expensive, even for avid fans like me, at 27 times earnings. Forecast earnings per share growth of 7% in 2016 only partly justify that. The rest is down to its reputation — in an uncertain world, the company’s vast and growing array of solid everyday brands are the old reliables. You may give brands such as Durex, Clearasil, Dettol, Harpic, Scholl and Vanish little conscious thought, but they have been part of your life for as long as you can remember.

The downside is that Reckitt’s yield is a disappointing 2.2% at a time when many stocks are yielding 6% or 7%, or even more. It is certainly reliable, but if that doesn’t quite tempt you, Unilever looks comparatively cheap at 17.7 times earnings and yields a more generous 3.13%.

Competitive, profitable, consistent

Unilever could easily be more expensive, given that, like Reckitt, its sales have survived the emerging market slowdown, helped by double-digit growth in China and Latin America. It is even growing sales in recession-hit Brazil. Chief executive Paul Polman has neatly summed up what investors like about Unilever: “Our model of competitive, profitable, consistent and responsible growth is built on sustained investment in our brands, infrastructure and people.

Nobody buys Reckitt Benckiser or Unilever in the hope that they will shoot the lights out, but over the last five years that’s exactly what they have done, in relative terms. Steady, reliable growth should be the order of the day from now on. But given recent sparkling outperformance, who knows? If you think Reckitt Benckiser looks pricey, for once, at least, Unilever does not.

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.

Harvey Jones has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK has recommended Barclays and Centrica. 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

Illustration of flames over a black background
Investing Articles

2 red-hot UK growth stocks to consider buying in April

These two growth stocks are performing well, but can they continue to deliver for investors through 2024 and beyond?

Read more »

Charticle

Is JD Sports Fashion one of the FTSE 100’s best value stocks? Here’s what the charts say!

The JD Sports Fashion share price remains a wild ride during the first quarter. Could it be one of the…

Read more »

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 »