Is Unilever the ultimate retirement stock?

Unilever’s valuation is lower than it was and the dividend is attractive. But are the risks worth taking for retirement investors?

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Fast-moving consumer goods company Unilever (LSE: ULVR) is a stock that often finds its way into the portfolios of private investors.

But is it a good choice for those aiming to build funds for retirement and those who have already left their work and careers?

My short answer to that question is I think Unilever is a business with many attractions. And it’s worth consideration for inclusion in a diversified portfolio of shares focused on the long term.

Slowing growth

Over the past few years, growth in the Unilever business has slowed. And the stock began to consolidate from around the middle of 2019. But that situation ended a run higher that had been going on for around a decade.

However, I think the consolidation on the chart reflects consolidation in the business. And one happy outcome is that Unilever’s valuation has improved.

For example, with the share price in the ballpark of 4,095p, the forward-looking dividend yield is near 3.8% for 2024.

And that puts the company on the watch lists of investors seeking reliable and growing dividend income.

Dividends are an important component of total returns. And they can be vital for investors in retirement or close to it.

But I reckon dividends from businesses in defensive sectors are best. And Unilever is known for its consistent cash flows and reliable dividend record.

The company’s strong brands tend to drive regular repeat business. And customers’ loyalty to brands means Unilever tends to fare well during recessions and general economic downturns. 

Unilever used to be prized for its steady growth. And that long period when the share price advanced between 2009 and 2019 underlines the attraction back then.

But the business is maturing somewhat. And perhaps we should now regard the stock as a slow-growing dividend payer.

Consistent cash flow and dividends

I’m comfortable with that situation as long as the cash flow continues to support shareholder dividends in the years ahead. The compound annual growth rate of the dividend is running at about 3.35%. And that’s satisfactory if it continues. 

However, the company has its challenges. Some have criticised the company lately for continuing its operations in Russia. The country delivered around 1.4% of overall revenue in 2022.

And the cost-of-living crisis has tested customers’ brand loyalty. Many have likely switched to cheaper brands, at least for the time being. So, there are uncertainties and risks facing the business.

Nevertheless, Unilever keeps marching on and the directors are active in their efforts to keep the brand portfolio relevant for today’s consumers. In June 2023, the company said it is set to acquire frozen yogurt brand Yasso Holdings in North America. 

The directors said the aim of the move is to “upscale” the ice cream division and cater to rising demand for healthier snack options. Yasso will join other premium ice-cream brands in the company’s portfolio, such as Ben & Jerry’sMagnum, and Talenti.

There can be no guarantees of a successful investment outcome with Unilever or any other business. However, I’d be inclined to embrace the risks and dig into the company now with further research. My aim would be to make the stock part of a long-term diversified portfolio focused on retirement.

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.

Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has recommended 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.

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