Unilever shares: the best bargain buy in the FTSE 100?

Investors are cheering the latest set of full-year numbers from FTSE 100 giant Unilever. Paul Summers wonders whether it might offer the best value in the whole index.

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Today’s (8 February) update from Unilever (LSE: ULVR) has been positively received by the market with shares in the FTSE 100 consumer goods giant up nearly 3% as I type.

Should Fools like me take this as a signal that the stock is among the best bargain buys in the entire index?

Here’s my take.

Slow progress

A few things jump out at me from today’s announcement.

The first is that Unilever reported a return to volume growth in the final three months of 2023. A rise of 1.8% might not be much but it’s the first time this has gone up since the second quarter of 2021.

The company also stated that there would be a “modest improvement” in operating margin to 16.7%. That’s positive, even though it missed analyst expectations of 16.9%,

Another bit of news was the unveiling of a €1.5bn share buyback. This tends to be a good thing because a reduction in the number of shares outstanding increases the value of the remaining shares.

Notwithstanding this, CEO Hein Schumacher labelled the firm’s performance as “disappointing” and that things needed to improve.

Personally, I like this no-nonsense approach. I’m also pleased to see that Unilever seems to be paying a little less attention to pushing its green credentials.

Where’s the value?

Before this morning, Unilever stock changed hands for a little under 17 times forecast FY24 earnings. That’s not exactly cheap relative to the market as a whole.

But comparing this company to others in the FTSE 100 might not be the best strategy. After all, the index features a vast array of businesses operating in very different industries.

Interestingly, Unilever still doesn’t look cheap relative to the Consumer Defensives sector but it does look like a good deal compared to its own average valuation over the last five years.

This being the case, I think the shares could offer value if it’s assumed that cost-conscious consumers will return to branded goods when economic confidence returns. Of course, nothing can be guaranteed.

Food for thought.

Solid dividend stream

Another thing I like about Unilever is the passive income stream its shares generate. Before this morning, the shares were down to deliver a dividend yield of 4% in 2024. This is higher than that offered by a fund that tracks the return of the FTSE 100.

Importantly, the company also has a good record of hiking payouts nearly every year. I’d much prefer to see a trend like this (and receive adequate-but-growing dividends) over a sky-high yield that could end up being cut if trading slows.

Quality stock

To answer the question, I’m not sure Unilever can be described as the best bargain buy in the FTSE 100. Its sheer size means that its growth projections must remain realistic. In simple terms, this is not a stock that I expect to deliver huge gains in a single year.

However, I do regard this company as a cornerstone for a quality-focused portfolio and one that should outpace the FTSE 100 over the long term.

And as someone who would rather grow his wealth slowly but confidently, that’s good enough for me.

If I didn’t hold the shares indirectly via several funds, I’d be a buyer today.

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.

Paul Summers 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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