On 7 June last year I invested £2,000 in Unilever (LSE: ULVR) shares, with plans to build up my position over time.
Around the same time, I also invested £2k into FTSE 100 shares 3i Group, Legal & General Group, M&G, and Smurfit Kappa Group. I’ve since bought more of all of them, with the exception Unilever. I haven’t been tempted to add to my 49 shares.
For years, Unilever was a no-brainer buy. It boasted more than a billion customers in around 190 countries. As the emerging markets middle class got richer, they’d spend more and more money on Unilever’s 400 brands like Lifebuoy, Dove, Axe and Sunsilk. Today, it’s more of a Marmite stock.
Some like it, some don’t
Nothing lasts forever, especially when it comes to investing. As earnings slowed, Unilever drew the attentions of billionaire activist investor Nelson Peltz, who wanted to break up the company’s sprawling operations to release value. Initially unwelcome, now he’s a non-executive director.
The board then botched the acquisition of GSK’s consumer healthcare division, ran into controversies over its environmental, social, and governance (ESG) strategy, and was derided by Terry Smith at Fundsmith Equity, who blasted the board’s long-term performance and “penchant for corporate gobbledegook”.
Unilever also suffered as the emerging markets growth story didn’t have the happy ending we all expected. Its share price stopped climbing, then fell. Enter me.
For years, Unilever traded at just shy of 25 times earnings. I bought it at 17 times. Bargain! The yield used to hover around the 2% mark. I bought at almost 4%. It looked a classic case of buying a good company on bad news. All I had do to was wait.
I’ve only held the stock for nine months, but it feels longer. Within weeks the share price dropped around 10%, and refused to budge. Over 12 months, it’s down 17%.
There was a flurry of excitement last week, when the Unilever share price briefly stirred into life.
Slow road to recovery
Investors soon lost heart after Morgan Stanley deemed the rally exaggerated, citing the company’s low earnings-to-cash conversion rate and high emerging markets exposure. Today, I’m down around 3.83%. Or around £75, which isn’t much but then I didn’t buy much (luckily).
Full-year 2023 results, published on 2 February, contained positives including free cash flow climbing €1.9bn to €7.1bn, and a new €1.5bn share buyback from Q2. Management also admitted to its faults, with CEO Hein Schumacher confessing that “competitiveness remains disappointing and overall performance needs to improve”.
Sod’s law suggests that if I sell Unilever its shares will fly and in any case, I waited too long to buy them to sell so soon. More patience required.
I made one rookie error when buying Unilever. I automatically reinvest all of my dividends, but my first payout of £18.20 on 8 December was too pitifully small to reinvest, with the stock trading around £38 at the time. So I’ll double down and invest another £2k to make future dividends reinvestable. If I’m going to hold Unilever for the longer run, I might as well do it properly.
