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Unilever plc Could Be Worth £39 In Five Years

Some shares are exciting and inspire people to try to get rich quick, while others are considered safer and more reliable, and better suited to patient long-term investing.

UnileverUnilever (LSE: ULVR) (NYSE: UL.US) is firmly in the latter category, and its wide range of household products make it one of the most reliable on the market. With the firm owning a dozen or more worldwide brands with annual sales of a billion euros or more (including Lipton, Dove, Knorr and Sunsilk) together with hundreds of other well-known names, there can’t be many families on the planet who never buy a Unilever product.

Look at the cash!

But being unexciting and “reliable” in this way doesn’t mean a share does not make good gains. Would you be surprised, for example, to learn that the Unilever price has almost doubled in the past five years?

At £26.76 today, the shares are up 84% on their price of £14.50 from from May 2009, and there’s around another £2.60 per share to add from dividends — taking the total return to over 100%. Still think “safe and reliable” means boring?

Sure, that period starts in the dark days of 2009, but if we look back over 10 years the recession already looks like just a blip — and over the decade, Unilever shares have soared by 140% compared to just 50% for the FTSE 100, as earnings from the consumer products giant have just kept on going.

But what about the future?

Forecasts look good

Well, forecasts for the year to December 2014 suggest underlying earnings per share (EPS) of around 131p, and from the 104p recorded in 2009, that would be a five-year rise of 26% (and if forecasts prove accurate, the dividend will have more than trebled).

Suppose we see the same rate of earnings growth over the following five years — and that’s not stretching things at all, I don’t think — what could a share bought today be worth?

Another rise of 26% would take EPS up to 165p, and assuming a constant P/E (and it’s remained pretty stable at an average of around 19 for some time), that would suggest a share price rise to £33.75.

Then we have dividends to add. Forecasts suggest a yield of around 3.5%, so if the annual payout were to rise by the same proportion as the share price each year, we’d expect to add another £5.40 per share in cash.

So what’s it worth?

A single Unilever share bought now for £26.79 could be worth a total of £39 in five years time, and that’s a return of 46%. A handful of shares that could grow at that rate over the long term would make a nice basis for a profitable portfolio.

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Alan does not own any shares in Unilever. The Motley Fool owns shares in Unilever.