I’m keen to buy this top FTSE 100 income and growth stock in March

This FTSE 100 stock has had its troubles lately but it’s now on the comeback trail. I’d like to buy before the share price picks up further

| 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.

Senior couple crossing the road on a city street. They are walking with shopping bags while Christmas shopping.

Image source: Getty Images

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.

Consumer goods giant Unilever (LSE: ULVR) has had a rough time lately, which took me by surprise. For years, I considered it the most solid stock on the FTSE 100, with the possible exception of spirits giant Diageo. Yet lately it has come under fire on a number of fronts.

Post-Covid supply chain disruptions and global economic slowdown saw earnings per share fall for three years in a row, and at an average rate of 12% a year. The group’s ill-fated £50bn takeover bid for GlaxoSmithKline’s consumer healthcare arm also cast a shadow.

FTSE 100 winner turned loser

Unilever’s management then managed to stumble into a culture wars row. Critics claimed CEO Alan Jope was too busy worrying about unconscious bias training and failing to show enough concern about the embattled bottom line.

The company also drew the attention of activist investor Nelson Peltz, who reportedly wanted to break up the company. One option was said to be spinning out Unilever’s food and refreshments business. Things have gone quieter now Peltz is on the board.

Unilever’s shares peaked at 5,333 in September 2019, then went into sharp decline. At this time last year, they traded at just 3,400, a drop of 36%. That was a shock fall from grace after years of steady, seemingly unstoppable growth.

No stock climbs in a straight line forever. For that reason, I prefer to buy companies when their share price is down rather than up. You never know what is coming either way, but it reduces the risk of overpaying.

I should have bought Unilever a year ago. Its share price is up more than 20% since those dark days. Yet there are still good reasons to buy it this March.

First, it is still relatively cheap, by its own standards. I grew accustomed to Unilever shares trading at around 24 times earnings, but today its price-to-earnings valuation is just 18.5. That’s good value for what remains a quality global company.

Good value by its own high standards

Its dividend yield is slightly better than it used to be, although hardly spectacular at 3.7% a year. However, that is covered 1.7 times by earnings, and is forecast to hit 4.2% next year. Unilever management has treated dividend investors well in the past, so I would anticipate further progression.

Unilever is thought of as a defensive stock, as its revenues should hold up during a downturn. Consumers continue to buy low-cost essentials such as soap, shampoo, toiletries, and washing-up powder in a recession.

Accordingly, this month’s figures showing annual sales growth beating expectations at 9%. Better still, Unilever has pricing power, which allows it to pass on increased to costs to customers. Over the year, its prices rose by 11.3% with little impact on sales.

That should prove important going forward, as inflation could prove stickier than we think. Management expects “strong underlying sales growth” in the year ahead. That’s good enough for me.

I may have missed my chance to snap up Unilever at a true bargain price, but I still think it looks good value for a long-term, buy-and-hold investor like me. It’s on my buy list.

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 of the shares mentioned. The Motley Fool UK has recommended Diageo Plc and Unilever Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

1 penny stock I’d buy today while it’s 63p

This penny stock's down 70% since last March, yet could be set for a big comeback as the firm rebuilds…

Read more »

Businessman use electronic pen writing rising colorful graph from 2023 to 2024 year of business planning and stock investment growth concept.
Investing Articles

Buying 8,617 Legal & General shares would give me a stunning income of £1,840 a year

Legal & General shares offer one of the highest dividend yields on the entire FTSE 100. Harvey Jones wants to…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

£25k to invest? Here’s how I’d try to turn that into a second income of £12,578 a year!

If Harvey Jones had a lump sum to invest today he'd go flat out buying top FTSE 100 second income…

Read more »

Union Jack flag in a castle shaped sandcastle on a beautiful beach in brilliant sunshine
Investing Articles

2 lesser-known dividend stocks to consider this summer

Summer is here and global markets could be heading for a period of subdued trading. But our writer thinks there…

Read more »

pensive bearded business man sitting on chair looking out of the window
Investing Articles

Here’s how I’d aim to build a £50K SIPP into a £250K retirement fund

Our writer outlines the approach he would take to try and increase the value of his SIPP multiple times in…

Read more »

Investing Articles

9.4%+ yields! 3 proven FTSE 100 dividend payers I’d buy for my Stocks and Shares ISA

Our writer highlights a trio of FTSE 100 shares with yields close to 10%. He'd happily pop them into his…

Read more »

Mixed-race female couple enjoying themselves on a walk
Investing Articles

Are Raspberry Pi shares a once-in-a-lifetime chance to get rich?

With Raspberry Pi shares surging after a successful IPO, could this UK tech startup offer a long-term wealth creation opportunity…

Read more »

Newspaper and direction sign with investment options
Investing Articles

Huge gains and 9% yields: why now’s an amazing time to be a stock market investor

The stock market’s generating fantastic returns in 2024. Whether you're looking for gains or income, it’s a great time to…

Read more »