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The Unilever share price is under 4,000p. Here’s what I’m doing now

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Unilever (LSE: ULVR) is often been as one of the most reliable and defensive stocks in the FTSE 100. That’s thanks to a powerful portfolio of leading brands, including Dove, Hellmann’s and Magnum. The company also has a strong presence in emerging markets. This has helped it maintain strong profits over the past few years. Nevertheless, although Unilever have proved resilient in the pandemic, its performance has been far from spectacular. A fairly disappointing full-year update has seen the Unilever share price fall below 4,000p for the first time since the stock market crash last year. As such, is this a stock that I’m looking to add to my portfolio?

The recent trading update

The main disappointment of the recent trading update was the fact that operating profits fell 4.6% to €8.3bn. Although this is by no means a poor performance, it was slightly worse than expected. Indeed, the trading update led to a decline of around 6% in the Unilever share price on the day. 

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In many ways, I believe this share price drop may have been slightly harsh. This was due to a number of positives that could be taken from the update. For example, the company also revealed that free cash flow had risen €1.5bn from 2019 to €7.7bn. This reflects its objective to preserve cash. It also allowed Unilever to increase the fourth quarter dividend by 4% to 37.6p. At a time of dividend cuts, the fact that Unilever comfortably managed to raise its payout shows confidence in the company’s future. A dividend yield of nearly 4% is also very tempting to me.

What do I think the future holds?

Last year, Unilever announced it had completed the unification of its group legal structure under a single, UK-headquartered, parent company. This ultimately creates a simpler company and gives it more flexibility. As such, I expect a larger number of both acquisitions and brand sell-offs over the next few years, as the company ensures that it adapts to a post-Covid world.

The group has already signalled its intention to spin off its tea operations, either through a separate listing on the stock exchange or a sale of the unit. I’m encouraged to see change within the business, because I believe that this could have a positive effect on the Unilever share price in the future.

Restructuring comes with costs though, and these are estimated to be around €1bn for 2020 and 2022. This may be detrimental to profits and further decrease profit margins. A price-to-earnings ratio of around 20 doesn’t seem like a bargain either, so there are still issues associated with the stock.

What am I doing with Unilever shares?

Right now, I’m just keeping a firm eye on the Unilever share price. While I do think that it’s fairly good value at the moment, there are still obstacles to overcome. One of my main worries is the firm’s current issues in growing profits. As such, I’m not going to buy the shares right now, but it’s still one I’m looking at. 

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Stuart Blair has no position in any of the shares mentioned. The Motley Fool UK 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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