Unilever plc Dividends Are Safe And Very Desirable

unilever2Unilever (LSE: ULVR) (NYSE: UL.US) is renowned for being a defensive stock to hold during downturns, as its huge panoply of products are the things that people need to keep buying — essential food, cleaning and personal care products like Lipton, Wall’s, Knorr, Hellman’s, Ben & Jerry’s, Lux, Cif, Sunlight, Flora and Domestos.

Unilever’s all-pervasive worldwide reach helps even out regional downturns, too. In 2013, only 60% of Unilever’s turnover came from Europe and the Americas, with the rest coming from Asia, Middle East, Africa and the rest of the world.

Soaring ahead

The share price has borne that out, gaining 65% over the past five years to today’s 2,710p, easily beating the FTSE 100’s 40%. And over 10 years it’s up 150% compared to 50% for the index.

What about the dividend situation? Here’s Unilever’s recent record (in eurocents):

(to Dec)
Dividend Yield Cover Rise
2010 81.90c 3.3% 1.84x n/a(1)
2011 93.14c 3.4% 1.57x +14%
2012 97.22c 3.3% 1.62x +4.4%
2013 109.49c 3.5% 1.48x +13%
113.10c 3.4% 1.44x +3.3%
121.10c 3.6% 1.46x +7.1%

* forecast
(1) Unilever switched to quarterly dividends starting with the fourth quarter of 2009

Beating inflation

The FTSE 100 has been averaging around 3% per year in overall dividend yields, so as well as the share price handsomely beating the index during the downturn, Unilever’s dividends have been coming out on top, too.

And, more importantly, they have been growing faster than inflation. Beating inflation over the long term is, if anything, more important than a high yield today — in 10 to 20 years, today’s biggest dividends will have eroded to nothing if they can’t keep pace with retail prices.

In fact, looking at the 1,620p price levels of five years ago, if you’d picked up some Unilever shares then, you’d be all set for an effective forecast dividend yield this year of 5.6%.

Highly valued?

Now, quality shares come at a price, and in this case that’s a pretty high forward P/E rating of 21 for this year — a fair way ahead of the FTSE’s long-term average of 14. That might make you wince a little, but even in the dark days of 2009 Unilever shares ended the year on a P/E of 19.

I reckon capital growth will mostly likely be slower over the next five years than the last five, but I still think Unilever will provide market-beating returns for those with investing horizons of a couple of decades.

And if you're looking for other companies providing strong long-term dividends like Unilever's, you should have a read of "The Fool’s Five Shares To Retire On" report. They're all top FTSE companies, and between them they provide a nicely balanced selection.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK 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.