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The Unilever share price: 5 reasons I’d buy the stock

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The Unilever (LSE: ULVR) share price is one of my favourite investments in the FTSE 100. Here are the five reasons I’d buy more of the stock today.

Household names

The company owns a portfolio of well-known brands, many of which are household names. Brands such as Marmite, Ben and Jerry’s and Radox. While these brands do face competition in their respective sectors, they are well established in the minds of consumers.

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As such, I believe that if Unilever continues to invest in these products, they should remain household staples. This sort of brand recognition is an incredible competitive advantage for the group.

Large profit margins

The company’s strong profit margins have long supported the Unilever share price. Thanks to its portfolio of recognisable brands, which consumers are generally happy to pay more for, its profit margins are significant. For the past five years, the group’s profit margin has averaged 17.2%, that’s compared to the average of around 5% for all London-listed businesses. 

Unilever share price returns

Unilever’s fat profit margins allow the business to invest substantial sums in marketing and research and development. They also provide enough cash for significant shareholder returns. At the time of writing, the stock offers a dividend yield of 3.6%. Over the past five years, the company’s dividend has grown at a rate of around 7% per annum.

There’s no guarantee this trend will continue, but I think it shows the income potential of the Unilever share price. 

International diversification 

More than 50% of Unilever’s sales come from developing and emerging markets. The company has established subsidiaries in many markets, such as Unilever India, which is well known across its home market. This is another competitive advantage that has allowed the business to outperform other Western peers in these regions.

While having a local presence doesn’t always guarantee long-term success, it does indicate Unilever can respond faster to local trends. 

Pricing power

The combination of the company’s strong brand recognition among consumers and knowledge of local markets means it has incredible pricing power. Management can increase or decrease prices without having to worry too much about losing sales.

This has helped the business maintain its profit margins and should enable the corporation to increase prices if it faces threats such as rising input costs and inflation. 

Risks facing the Unilever share price 

These are probably the two most significant risks facing the Unilever share price right now. Rising inflation could erode the company’s profit margins, although its ability to increase prices may help the business deal with this headwind.

Higher labour costs could also reduce margins and increased costs. Then there’s competition to consider. Unilever is facing increasing competition from opportunist and more ethical brands. This opposition could weigh on growth in the medium to long term. 

Despite these challenges, I think the Unilever share price looks incredibly attractive today, based on all of the above. As such, I’d buy the stock for my portfolio.

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Rupert Hargreaves owns shares in Unilever. 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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