British multinational consumer goods firm Unilever (LSE: ULVR) is one of those amazingly rare stocks that has offered shareholders excellent growth in shares along with a regular and sizable dividend.
It’s little wonder the company has climbed to a £102bn valuation, making it the fourth largest on the London Stock Exchange.
Should I pick up a few shares myself? Well, I think one of Unilever’s strengths is being a safe but lucrative investment during a downturn thanks to its wide range of strong brands like Dove, Hellmann’s and Magnum.
The last year or so has been rocky for the markets, so let’s see how a £1,000 stake in this company would have performed.
How much would £1,000 be worth now?
The Unilever share price was £39.46 at the start of 2022 and has increased to £40.86 at the time of writing. A modest 3.5% increase on share price alone then. Not too bad, but I have to factor in the dividend too.
Dividends since the start of 2022 have been quarterly payouts of 36.02p, 35.9p, 36.33p, 37.22p and 38.12p. That last one is about to be paid in a few days’ time, on 21st March, but I’ll include it for good measure. Now the share price is up to £42.70, an 8.2% increase.
My £1,000 worth of Unilever shares would be worth £1,082. That’s an okay return for just over a year, but during a stock market correction and cost-of-living crisis? I’d be very happy with that.
Oh, and the actual return would be a little bit higher if I’d reinvested those dividends straight back into more shares.
So is this enough evidence for me to go all in on the consumer goods company? Definitely not, and here’s why.
Two things I must bear in mind
A calculation like the one above can be useful to help me choose stocks to invest in. After all, stocks that offer the highest returns are the ones I want in my investment account. That way, I can share in a company’s success. But there are two dangerous problems with blindly looking at a stock’s past returns.
Firstly, if I want to open a position in a stock then past performance is just one piece of the jigsaw. I want to own shares in a good company that will thrive. For this, research is absolutely crucial.
In Unilever’s case, an important detail is the firm’s strong brand power. People buy Magnum because they like the brand, not because they want the cheapest ice cream they can get. This is good for an inflationary environment like we have today, as rising costs can be passed on to the customers.
The second issue is that stocks and the markets they operate in are unpredictable. Even good companies can have a bad year or two.
A sound strategy to build long-term wealth is to invest in a few carefully chosen companies. This will smooth out the ups and downs of any single stock.
In this case? I do like Unilever on balance and can see the future being as successful as the past. As it is, I’ll look at opening a position in the company in the near future.
