Looking to start earning a second income? The FTSE 100 is a great place to hunt for high-quality opportunities.
One example is Unilever (LSE:ULVR). It’s a giant in the consumer goods industry and it’s unusually cheap right now.
Consumer staples
Unilever has been one of the FTSE 100’s most consistent sources of dividends. And that’s not a big surprise – it makes the products people use every day.
That means demand is generally pretty stable, even in a recession. People might not always go on holiday, but it takes a lot for them to stop buying deodorant.
There is a downside to this. A bit like my wardrobe, Unilever’s products never go out of fashion – but they also never come into fashion.
As a result, it can be hard for the firm to generate meaningful growth. It’s already huge and the market it competes in isn’t really getting bigger.
The other risk is that it’s very easy for customers to switch to other products. So Unilever has to work hard constantly to keep them coming back.
Those are real challenges. But the FTSE 100 firm has some key strengths when it comes to generating growth and fending off competition.
Brand power
Unilever doesn’t just make stuff that people use. It has some of the top products in various categories, with brands including Domestos, Persil, and Vaseline.
This matters for more reasons than you might think. The obvious point is that these are names that consumers associate those names with quality.
In some cases, having the right brand can be even more important than having the best product. But there’s another reason why it’s valuable.
Unilever’s products battle for shelf space with competitors. And there’s a big advantage to being in the best position to attract customers. Suppliers have to negotiate with retailers for these spaces. But having a strong brand portfolio is a big advantage on this front. Retailers want to stock Unilever’s products to attract customers. And that gives the company more power when it comes to negotiating.
Why is the stock down?
All of this sounds pretty good, so why is the stock down? The short answer is that not all brands are created equal. Some of Unilever’s brands have been performing less well than others. And the company has been making moves to divest these.
Most recently, the food division has been sold. But it will take time and won’t be as straightforward as investors were hoping.
Nonetheless, a falling share price means higher dividend yields. Investors who buy 702 shares for £30,807 right now can earn £1,200 a year.
That’s a 3.9% dividend yield. And it’s extremely unusual to see Unilever shares available to buy with that kind of starting return.
Ultimately, the company looks like it’s getting itself into a stronger competitive position. If that’s the case, it’s got to be worth a look at today’s prices.
Income investing
For investors looking for income, Unilever is a really interesting stock. It has long-term strengths in an industry where demand is relatively durable.
It’s unusual to find shares in this kind of business going cheap. But that might be the opportunity that’s on the table right now.
