Shares in FTSE 100 consumer goods giant Unilever (LSE:ULVR) shot out of the blocks this morning as the company reported better-than-expected trading over the pandemic.
Here’s why I think the stock should be considered a worthy addition by most investors, particularly those fearing another market crash.
Unilever beats expectations
A 7% share price rise for a company already worth £120bn is quite something, so let’s take a closer look.
Underlying sales growth fell 0.3% over the second quarter and 0.1% in the six months to the end of June. This would ordinarily be regarded as disappointing but it’s actually a better result than most analysts had predicted. Performance in North America was a highlight. Underlying sales growth here hit 9.5% in Q2.
As one might expect, Unilever saw a rise in demand for products that could be consumed or used at home as lockdowns were enforced across the world. Sales of foods, ice cream and tea were higher over the period.
On the flip side, demand for personal care and beauty products, aside from those relating to hygiene, declined. Sales in restaurants, cinemas and the like inevitably tumbled as these venues were closed.
Solid hold
According to CEO Alan Jope, today’s set of figures show “the true strength of Unilever“. I’m not about to disagree.
While some may regard the company as a dull, lumbering giant, the consistency and diversification of its earnings coupled with an enviable portfolio of brands surely make the stock a solid hold during tough times. The fact that the company managed to double free cash flow to €2.9bn over the six months also leaves it in a strong financial position.
Don’t forget the dividends either. While far from the highest-yielding stock in the FTSE 100, Unilever is a reliable source of income. Today, it announced that the Q2 dividend would stay at €0.4104 per share. Assuming it returns €1.64 (149p) in the current year, the stock yields 3.2%. At a time when many in the FTSE 100 aren’t returning anything at all, that’s got to be attractive.
Shares in Unilever were trading on a price-to-earnings (P/E) ratio of 20 prior to this morning’s announcement. I still don’t regard this as unreasonable.
Another top dividend payer
Another top-quality stock reporting today was FTSE 250 online trading provider IG Group (LSE: IGG).
Thanks to an “exceptional Q4” due to market volatility, the company revealed a 36% rise in full-year net trading revenue to just under £650m. Pre-tax profit also jumped 52% to £295.9m as the number of clients actively trading via the company’s platform grew 34% to 239,600.
Despite these great numbers however, IG’s shares were down almost 10% in early trading. This would appear to be due to the company’s belief that market volatility will return to “more normalised levels” in the next financial year.
Personally, I think this is prudent. Far better to under-promise and over-deliver if (and that’s a sizeable ‘if’) we get another market crash later in 2020. Since no one knows the future with any certainty, I’d say today’s share price fall looks overdone.
Like Unilever, IG’s income credentials should not be overlooked either. Good to their word, the company confirmed today that its total dividend for the year would be 43.2p per share. Assuming this payout is maintained going forward (and there’s no reason to suggest it won’t be), IG yields 5.5%.
I’ve no hesitation in retaining my holding.
