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Here’s why I’d buy the Unilever share price right this minute

Is global household goods giant Unilever (LSE: ULVR) the best buy-and-hold stock on the FTSE 100? It has few serious rivals for that title and GA Chester says he would happily hold it for 20 years or more. 

Emerging success

Every time I have looked at the £119bn group, it seems to be doing pretty well for itself (and its investors). That is also the case today. It is up 3.35% at time of writing after defying low expectations to post underlying sales growth of 3.1% for the first quarter, driven by a strong emerging markets performance of 5%. Developed market sales grew just 0.3%, which may tell you a lot about the direction in which the world is heading.

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Turnover fell by 1.6%, although that was mostly down to the disposal of its spreads division. CEO Alan Jope hailed a solid start that keeps us on track for our full-year expectations”, with growth balanced between volume and price.

Acceleration

He said accelerating growth is now the group’s number one priority, which requires both great execution and a continued strategic shift into faster growth segments and channels”. Recent acquisitions have been successful, with post-2015 additions collectively posting double-digit growth.

Jope said full-year underlying sales growth should be in the lower half of Unilever’s multi-year 3% to 5% range, one disappointment amid the general good news. However, an improvement in underlying operating margin should keep it on track for its 2020 target and another year of strong free cash flow, Jope added.

Income hero

Shareholders will reap the benefit with the quarterly dividend hiked 6% to €0.4104 per share, although it’s a funny dividend stock, this one, as it rarely yields more than 2% or 3%. Today’s forward yield is a relatively high 3.3%, with cover of 1.5, but the important thing here is the progression. Over the five years to 31 December 2018, the dividend was steadily lifted from €1.14 to €1.55, a total increase of 36%. No wonder Edward Sheldon would build his portfolio around it.

The other thing about Unilever is that its stock usually trades well above the 15 times earnings generally seen as fair value. Today it trades at exactly 20 times forward earnings, which is lower than I have seen it. The price-to-revenue ratio is just 1.1. By its own standards, Unilever is almost cheap. That’s despite a 12% rise in the share price over the past 12 months.

Growth conundrum 

The big question is whether it can keep growing forever. It faces a struggle in developed markets, and at some point emerging markets may top out too. You cannot sell more Dove, Knorr, Hellmann’s, Liptons, Lux, Magnum and Marmite forever. What management can do is make further disposals to focus on more profitable lines, or pursue more acquisitions.

As the world gets more affluent, Unilever should continue to grow, as emerging markets remain far behind Western consumption levels. Forecast operating margins are a healthy 17.8%. The share price is up 66% over five years, against 11% growth on the FTSE 100. Earnings per share are forecast to grow 7% this year and 10% next. I wish buy-and-hold was always this exciting.

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Harvey Jones has no position in any of the shares mentioned. 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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