Shares in businesses that make the things people use every day can be great sources of dividend income. Especially when they have some of the strongest brands in the industry.
Unilever (LSE:ULVR) is one example. And as the stock falls 6% this morning (13 February), the company’s results for Q4 2024 are ones that investors should take a closer look at.
Growth… sort of
Unilever is a company in transition – it’s been divesting some of its weaker brands to focus on some of its stronger ones. As a result, it reports sales figures that take this into account.
On this basis, sales growth for the full year came in at 4.2%. And wider margins meant operating were up 12.5% and share buybacks caused earnings per share to grow 14.7%.
That looks very strong, but there is a catch of a sort. In its report for the first half of 2024, Unilever posted growth rates of 17.1% in operating profits and 16.3% in earnings per share.
In other words, growth rates below the top line are still strong. But investors looking at the full-year results should note they’re less strong than they were earlier in the year.
One of the areas where this is most obvious is the Beauty division, which features brands like Dove, Sunsilk, and Vaseline. Sales in this division grew 5.2% in the fourth quarter of 2024.
That’s not bad. But it’s below the 6.5% average for 2024 and quarterly growth rates in this part of the business have been declining, which is something investors should pay attention to.
Outlook
Across its divisions, Unilever has shown a good ability to increase prices without seeing significant volume declines. That’s the sign of a company with quality brands.
The firm’s ability to do this, however, isn’t unlimited. And the fact it’s easy for customers to switch to other alternatives if they choose to is a constant risk.
Looking ahead to 2025, the firm is expects sales growth of between 3% and 5%, with further profit increases from widening margins. That’s pretty much in line with my expectations.
The big question is whether or not it’s worth it. The latest decline means the stock trades at a price-to-earnings (P/E) multiple of 18 based on the company’s adjusted numbers.
As the dividend continues to increase with the share price falling, the yield is set to creep back to 3.5%. That’s the kind of return I think income investors should consider the stock at.
Despite this, I’m not buying the stock right now. I’m keen to see what happens with the firm’s ice cream division in 2025 before taking a view on what to do.
Ice cream
Unilever is set to spin off its ice cream ops this year, with listings in London, Amsterdam, and New York. And I’m keeping a close eye on this as it develops.
In recent years divested companies have often struggled out of the gate before going on to do well. So this is where I’m looking for a potential buying opportunity around Unilever this year.
