Will shares in Unilever help you build a FTSE-beating retirement fund?
The last five years have been tough for those in retirement. Portfolio valuations have been hammered and annuity rates have plunged. There's no sign of things improving anytime soon, either, as the eurozone and the UK economy look set to muddle through at best for some years to come.
A great way of protecting yourself from the downturn, however, is by building your retirement fund with shares of large, well-run companies that should grow their earnings steadily over the coming decades. Over time, such investments ought to result in rising dividends and inflation-beating capital growth.
In this series, I'm tracking down the UK large-caps that have the potential to beat the FTSE 100 (UKX) over the long term and support a lower-risk income-generating retirement fund (you can see the companies I've covered so far on this page).
Today, I'm going to take a look at Unilever (LSE: ULVR), one of the world's largest consumer goods companies, whose brands -- which include Cif, Dove, Hellmann's, Bertolli and Domestos -- we all use.
A Share To Hold Forever?
Unilever has a strong presence in emerging markets such as India. This has helped to fuel growth over the last decade. Let's take a look at how Unilever has performed against the FTSE 100 over the last 10 years:
| Total Return | 2007 | 2008 | 2009 | 2010 | 2011 | Trailing 10 yr avg. |
|---|
| Unilever | 35.8% | -13.4% | 30.4% | 2.0% | 14.1% | 10.4% |
| FTSE 100 | 7.4% | -28.3% | 27.3% | 12.6% | -2.2% | 7.2% |
Source: Morningstar
(Total return includes both changes to the share price and reinvested dividends. These two ingredients combined are what make it possible for equity portfolios to regularly outperform cash and bonds over the long term.)
Unilever has outperformed the FTSE 100 in four of the last five years, often by a large margin. This has contributed to its superior ten-year trailing average total return, which is a very healthy 10.4%.
What's The Score?
To help me pinpoint suitable investments, I like to score companies on key financial metrics that highlight the characteristics I look for in a retirement share. So how does Unilever shape up?
| Item | Value |
|---|
| Year founded | 1930* |
| Market cap | £63.5bn |
| Net debt | £8.4bn |
| Dividend Yield | 3.4% |
| 5 year average financials |
|---|
| Operating margin | 14.8% |
| Interest cover | 12.9x |
| EPS growth | 15.7% |
| Dividend growth | 7.4% |
| Dividend cover | 2.1x |
Source: Morningstar, Digital Look, Unilever
*Unilever was formed when several existing companies merged.
Here's how I've scored Unilever on each of these criteria:
| Criteria | Comment | Score |
|---|
| Longevity | A long, successful history. | 5/5 |
| Performance vs. FTSE | FTSE-beating performance over the last decade. | 5/5 |
| Financial strength | Relatively high gearing is mitigated by strong, stable profit margins and good interest cover. | 4/5 |
| EPS growth | Attractive EPS growth should sustain future dividend increases. | 3/5 |
| Dividend growth | Unilever loses a point for cutting its dividends this year. Its yield is also below the FTSE average, although the potential for further growth compensates for this to some extent. | 3/5 |
Total: 20/25 |
A score of 20/25 suggests that Unilever could be a good candidate for a retirement fund portfolio. Its huge range of consumer brands and emerging market footprint means that demand and growth opportunities for its products should remain strong for years to come, even in adverse economic conditions.
Expert selections
If you'd like more retirement share ideas, then a good way of identifying great dividend-paying shares is to study the choices of successful professional investors. One of the most successful income investors currently working in the City is fund manager Neil Woodford, who manages more money for private investors than any other City manager. Neil Woodford's dividend stock picks have outperformed the wider index by a staggering 305% over the last 15 years.
You can learn about Neil Woodford's top holdings and how he generates such fantastic profits in this free Motley Fool report. Many of Mr Woodford's choices look like excellent retirement shares to me and the report explains how he chose some of his biggest holdings.
This report is completely free and I strongly recommend you download"8 Shares Held By Britain's Super Investor" today, as it is available for a limited time only.
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Further investment opportunities:
> Roland owns shares in Unilever. The Motley Fool has recommended shares in Unilever.
