Should You Buy Unilever plc For The Inevitable Downturn?

One of the biggest strengths of Unilever (LSE: ULVR) (NYSE: UL.US) is that it is what’s considered a defensive stock.

That is, even in economic hard times when people are tightening their belts, they’ll still be buying Unilever products — we simply do not stop eating and cleaning when we’re in tough times.

In fact, over the past 10 years, which included the worst recession that many people have lived through, Unilever shares provided treble the growth of the overall FTSE 100.

Just look at this, and tell me you’d rather have held Barclays:

Unilever shares dipped during the recession, but not as much as most, and they recovered quicker.


What are the company’s fundamentals looking like? Here’s the critical period plus a couple of years of forecasts:

Year Pre-tax EPS change P/E Divi Yield Cover
2009 €4,916m 133c -7% 18.7 41.1c 1.7% 3.24x
2010 €6,132m 151c +14% 16.2 81.9c 3.3% 1.84x
2011 €6,245m 146c -3% 18.5 93.1c 3.5% 1.57x
2012 6,533m 157c +8% 18.8 97.2c 3.3% 1.62x
2013 €7,114m 162c +3% 19.1 109.5c 3.5% 1.48x
€7,297m 161c -1% 20.1 112.7c 3.6% 1.43x
€7,333m 176c +9% 18.4 120.7c 3.8% 1.46x

* forecast

That shows steady earnings, decent dividends most years which are adequately covered, and with dividends rising every year.

And it’s really no great surprise that Unilever can just keep on selling its stuff, when it owns so many international brands — Dove, Flora, Hellmann’s, Knorr, Lipton, Sunsilk and a number of others each bring in annual sales of €1bn or more.

Highly valued

The only thing that might be of concern in that table is Unilever’s relatively high P/E — at around 19 to 20 it’s ahead of the FTSE 100 long-term average of 14, although dividend yields are a little ahead of the index’s 3% average too.

But quality and safety tend to command high valuations, and when the next economic downturn comes (and it will), those with Unilever in their portfolios will be feeling more secure.

When to buy

Does that mean buy risky shares now and consider switching to Unilever when the next slump starts? Well, no — unless you can predict the markets better than anyone else has ever done, you’ll be too late. The time to buy recession-proof shares is when there isn’t yet a recession.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool owns shares of Unilever. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.