Unilever’s (LSE: ULVR) a terrific dividend stock I own and would never consider selling. Not even for a second. News flow might have been encouraging of late, but its long-term investment appeal remains undimmed.
The household goods manufacturer, like many within the fast-moving consumer goods (FMCG) segment, has just warned that the tragic coronavirus breakout could have a serious impact on trading in the near term.
It recently said that “it’s too early to quantify” the potential impact on trading. But it commented that the outbreak will have a commercial impact. “About a fifth of our business in China is professional foodservice,” it noted, adding that this is “likely to be significantly impacted by a drop in out-of-home consumption.”
It’s no wonder that Unilever’s share price has trended lower this week on signs of growing infection rates in China.
More bad news
Concerns over the coronavirus aren’t the only reason why the FTSE 100 firm has spooked investors of late, though. In late January’s full-year financials, Unilever reported weaker-than-expected fourth-quarter sales, a period when underlying revenues rose 1.5%. This means annual sales growth for 2019 came in at 2.9%, a shade short of its 3% to 5% target.
Moreover, Unilever said that this weakness looks set to persist. Underlying sales growth should fall below 3% again in the first quarter of 2020, it said. It expects the pace to pick up thereafter though and revenues growth for the full calendar year is predicted to be “in the lower half” of its multi-year target (of 3% to 5%).
Clearly, things could be better at the ice cream, washing detergent, deodorant, tea and shampoo manufacturer. But that full-year release still underlines why I believe Unilever is the ultimate ‘stress-free’ stock. However difficult trading conditions are, as a rule, sales and profits continue chugging higher year after year.
There are a number of reasons for this. When you think of ice cream you think of Magnum and Ben & Jerry’s, Dove and Radox when it comes to personal care products like shower gels. The same with Hellmann’s and mayonnaise, Domestos and bleach, Colman’s and mustard.
These are brands whose connection with the global public is so strong that sales can be relied on to rise despite broader weakness in consumer spending. Unilever can be confident in raising prices without taking a significant hit to volumes too.
That list also reveals another formidable weapon in the company’s arsenal: diversification. It offers a broad category of products to protect group earnings should one or two categories struggle (like it is currently experiencing with tea). Unilever’s exceptional geographical diversification also insulates it from weakness in individual territories too.
A dividend hero
This brilliant earnings visibility gives Unilever the confidence to keep raising annual dividends. Payouts have risen by an average of 8% a year for almost four decades with no reductions in that time either. Even in times of rare profits, weakness in the company’s colossal cash flows can be relied upon to keep dividends rising. And City brokers expect this growth trend to continue over the medium term at least.
There are bigger yields than Unilever’s readings of 3.3% and 3.5% for 2020 and 2021, sure. However, few other Footsie stocks have the sort of robustness and therefore long-term profits security as this one. I don’t expect my love affair with this blue-chip to ever end.
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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.