I’m confident enough to say that stashing your cash into Unilever (LSE: ULVR) could be one of the wisest investment decisions that you ever make.
I’ve long argued that the FTSE 100 company’s many layers of diversification provide the foundation upon which it can deliver reliable profits growth year after year. As we saw with Unilever’s battered (and now divested) Spreads division in recent years, even if it endures a severe demand drop-off in one of its product ranges, the considerable range of other goods which it offers up (from bleach to soap, ice cream to tea) still facilitates regular earnings improvements.
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Unilever’s products can also be found in cupboards the world over, this broad geographic exposure reducing its reliance on one or two key territories.
What’s more, its vast presence in emerging economies in particular, where it currently sources around 55% of total turnover, is actually chiefly responsible for helping the top line to continue chugging higher at the current time. Underlying sales here rose 4.1% in the first six months of 2018 versus just 0.2% in its so-called developed markets.
Emerging market performance during January-June would have been stronger had it not been for a trucker strike in Brazil, one of the company’s larger markets. And as citizens in these far-flung regions become wealthier, sales of Unilever’s premium-priced labels in such undeveloped territories will only grow.
Targets on track
Indeed, Unilever is expecting annual underlying sales growth to hit a 3%-5% target by 2020 as profitability in its developed markets improves and pricing accelerates in its developing markets. This compares with sales growth of 3.1% last year, and UBS for one reckons the household goods giant is in good shape to meet these expectations — it is forecasting an improvement in organic sales to 4.1% by then.
Another reason to expect earnings to keep rattling higher is the success of its stonking great cost-cutting plan, the business achieving savings of €2bn in 2017 alone. This is putting it in sight of its underlying operating margin target of 20% by 2020. UBS is expecting a margin of around 19.9% by the start of the next decade, but with savings sprinting past expectations it wouldn’t be a surprise to see Unilever managing to stride past its current objective.
Dividends storming higher
As I said, Unilever is a terrific pick for those expecting relentless earnings growth, and current broker estimates reinforce my bullish sentiment. They point to bottom line rises of 2% in 2018 and 10% next year, resulting in a forward P/E ratio of 21.7 times.
Expensive on paper, sure, but a rating that is a fair reflection of the calibre of Unilever, its unparalleled product stable and the splendid structural opportunities in its key markets.
Besides, this steady growth path provides peace of mind that dividends should keep tearing skywards as well. And so City analysts are predicting payouts of 133.5p per share for this year and 144.6p for 2019, readouts that yield a juicy 3% and 3.3%. I would consider Unilever one of those shares that you can buy today and stash away for years, comfortable in the knowledge of secure and sizeable returns.