The idea that those approaching retirement should automatically sell whatever stocks they own is not one the Fool UK team agrees with. Sure, it makes sense to have more exposure to less volatile assets. But this shouldn’t mean great, dependable shares should be automatically jettisoned.
Despite today’s trading update not being received well by a market still reeling from last month’s crash, I think consumer goods giant Unilever (LSE: ULVR) is a great example.
Shift in demand
Underlying sales growth was flat as a pancake in the three months to the end of March. However, turnover did increase 2% to €12.4bn.
Broken down, revenue from developed markets rose 2.8%. But sales in emerging markets fell 1.8%. This makes sense considering the trajectory of the coronavirus. As countries like China went into lockdown, those in the West were busy stockpiling.
Encouragingly, the company’s factories remain open. Therefore, its ability to supply to retailers appears to be unaffected. New capacity has also been opened up for those products consumers are specifically demanding. Namely, food (savoury and dressings) and hygiene (surface cleaners and bleach).
Despite adapting, Unilever said uncertainty surrounding the pandemic made it hard to gauge the full impact on trading. It would, therefore, be withdrawing its previous guidance on growth and margin for 2020. The company will also be reviewing its cash usage and costs.
None of this should come as any surprise. That said, shares in Unilever were down 5% or so this morning, suggesting many investors are distinctly unimpressed.
Things could certainly get worse before they get better (particularly when Q2 numbers are released). However, I already see this as an opportunity for those thinking about which stocks to hold approaching/in retirement.
Judging a company based on just a few months of trading isn’t a good idea. It makes even less sense when the world encounters something like the coronavirus. As such, anyone concerned over today’s figures should take a look at Unilever’s long-term performance. In 20 years, the shares are up 350%. By contrast, the FTSE 100 is down almost 8%.
Unilever was trading on less than 19 times earnings before markets opened. This is below its average P/E over the last five years of 21. That might not seem a big difference, but it’s important to highlight that this stock rarely goes on sale. Now might be a good time to begin loading up.
It’s also worth reflecting on the dividend. It’s hardly the biggest payer in the FTSE 100, but the fact Unilever held its quarterly dividend at €0.4104 per share (36p) today reflects confidence in its financial position. Remember many index peers have needed to withdraw dividends to shore up their creaking balance sheets.
Assuming it returns the same amount for the other three quarters, this leaves the shares yielding 3.6% for FY20. Cash returns can never be guaranteed, but Unilever’s look more secure than most.
One for retirement
No one knows which way markets will head next. That said, the strategy of buying established and resilient businesses that generate consistently high returns on capital remains sound.
To me, Unilever is a great example. It won’t set portfolios on fire. But it’s not supposed to. For those looking for gradual capital appreciators, I think it continues to tick the box.
Paul Summers 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.