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Unilever: why I think it’s one of the best growth and dividend shares on the FTSE 100

I would suggest that there’s not many people on Planet Earth that haven’t encountered Unilever (LSE: ULVR) and its batallion of market-leading brands.

So vast is the FTSE 100 firm’s territorial footprint spanning both developed and emerging economies, and so wide is its collection of consumer goods products, I’d be shocked if you don’t have at least one of its premium products sitting in your kitchen or bathroom cupboards as you read this.

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The ubiquity of its products is the secret to Unilever’s success and its position as a reliable profits grower year after year. Selling colossal volumes of the likes of Persil washing powder, Hellmann’s mayo, Magnum ice cream and Rexona deodorant is the name of the game, and the Anglo-Dutch business is very good at it.

Tipped for recovery

Like any business, though, it isn’t immune to trading troubles now and again. Right now, Unilever has a few problems to overcome. Indeed, new chief executive Alan Jope, who brought the curtain down on Paul Polman’s 10-year tenure at the top on January 1, is in for a baptism of fire as competitive markets in North America and Europe slow sales growth to a crawl.

These sales troubles aren’t expected to go away any time soon, either. Jope has said he expects “market conditions to remain challenging,” and that underlying sales growth in 2019 will register at the lower end of its medium-term target of between 3-5%. Sales on a comparable basis rose 3.1% last year.

I’m confident, though, that Unilever can overcome these tough economic conditions and keep growing profits at a terrific rate. It’s the reason I’ve put my money where my mouth is, and bought into the household goods goliath during the summer.

Striking earnings AND dividend growth

Year

2015

2016

2017

2018

Sales (€bn)

53.3

52.7

53.7

51

Pre-tax profit (€bn)

7.2

7.5

8.2

12.4

Basic earnings per share (cents)

173

183

216

350

Dividend per share (pence)

88.49

109.03

125.58

135.3

Source: Unilever company accounts

The table above shows how earnings and dividends at Unilever have ticked ever upwards in recent years. It’s easy to pick a hole in some of the numbers, and particularly so in 2018 when the €6.8bn divestment of its failing Spreads division hit sales. But the business significantly boosted headline profits and earnings per share.

On an underlying basis, then, last year’s earnings rocketed 5.2% to 236 euro cents per share. And this followed the 10.7% rise of the previous year when comparable earnings clocked in at 224 cents.

Even though conditions in its established territories are the most difficult they’ve been for many years, the company is still expected to keep profits growing in 2019.

This pays tribute to the popularity of its labels, which remain well-bought irrespective of difficult macroeconomic conditions and fierce competition, as well as the sterling work that its ‘Connected 4 Growth’ programme is helping to drive up margins. In 2018, underlying operating margins at Unilever leapt 90 basis points year-on-year to 18.4%.

The Footsie firm’s forward P/E ratio of 19.3 times may be a tad expensive on paper. But given its exceptional defensive characteristics that allow earnings and dividends to keep rising, I reckon Unilever is still a bargain at current prices. It’s a top buy in uncertain times like these, in my opinion.

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Royston Wild owns shares of Unilever. The Motley Fool UK owns shares of and has recommended Unilever. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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