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A Warren Buffett-type FTSE 100 dividend stock I’d build my portfolio around

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Today I want to highlight a FTSE 100 dividend stock that I consider to be a ‘core holding’ or a central investment in my long-term portfolio. This company is a leader in its field and has a history of reliable and consistent returns. As such, it’s a dividend stock I’d be happy to own for the long term.

Unilever

As far as core holdings go, it doesn’t get much better than Unilever (LSE: ULVR) in my view. As I stated last month, it’s a stock I’d be happy to hold for the next 20 years.

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Unilever owns an incredible portfolio of food and drink, personal care, and home care brands, including well-known names such as PG Tips, Dove, and Domestos and globally its products are used by a staggering 2.5bn people per day. No matter what’s happening with the global economy, demand for Unilever’s products tends to remain relatively robust, which is a huge plus from an investment point of view, as that translates to consistent profits and reliable dividends. With a strong competitive advantage due to the power of its brands, Unilever is exactly the kind of stock that legendary investor Warren Buffett looks for (he tried to buy the company a few years back).

Future growth

Some investors have concerns about Unilever’s portfolio and argue that its mass-market brands could lose market share in the years ahead due to changing consumer tastes. However, I’m not convinced by this argument. According to top portfolio manager Nick Train, Dove – ULVR’s largest brand at around 9% of total group earnings and one that I use every single day – has grown its revenues by 84% over the last decade (6% CAGR) and growth has picked up in the last seven years. That does not indicate a dying brand.

Furthermore, I can see Unilever’s brands offering significant ‘trade up’ appeal to consumers in emerging markets (where the group generates over 50% of its sales) in the years ahead as wealth rises, which should also drive growth. Its recent acquisition of GSK’s Horlicks was a great move, in my view.

Finally, by purchasing Dollar Shave Club in 2016 (and other upstarts like Hourglass and Graze since), the group has shown that it won’t simply be sitting back and doing nothing as new entrants disrupt the industry and consumer tastes and preferences change over time.

Premium valuation

Bears also often argue that Unilever’s valuation is too high, as the stock regularly trades at a slightly elevated P/E of around 18-20. However, the way I see it is that like many things in life, you get what you pay for. In the same way that you’d pay more for a higher quality pair of shoes, I believe Unilever shares are worth a slightly higher price simply because the group has shown that it can generate reliable profits and consistent dividend growth throughout the economic cycle. That quality is worth a premium, in my opinion.

So, I think Unilever’s current P/E of 19.7 is a reasonable price to pay for the stock. I listed the stock as one of my top picks for 2019 back in January, and I think it is still priced to buy at current levels.

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Edward Sheldon owns shares in Unilever and GlaxoSmithKline. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline and 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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