The Motley Fool

Why Unilever plc Is a Top ISA Buy

When scanning my short list of companies to add to an ISA this year, Unilever (LSE: ULVR) (NYSE: UL.US) quickly rose to the top.

That’s because it’s a well-run company with a history of strong performance and big dividend payouts, and I think it could be a great foundational share for your ISA. (One of the many reasons I own shares myself!)

unileverUnilever started doing business more than 100 years ago, but today it’s a global giant in the consumer goods industry with 15 separate food, home care and personal care brands each posting sales of €1 billion or more.

From an investing perspective, Unilever is a pure consumer staples play. Just check your cupboards and you’re likely to see many Unilever brands, whether it’s Dove, Lipton, Knorr or Lifebuoy.

What you’re buying

Buying shares in Unilever today is buying into the company’s ability to leverage brand loyalty and keep stocking the shelves of people worldwide.

I think this is a wise move, because I see Unilever at its core as a strong business that is only getting stronger.

Emerging markets are a big part of the Unilever story, too. And despite a tough environment right now (and I believe this too shall pass), Unilever is innovating new products and using its operational expertise to wisely manage and scale its global operations.

The company drives 56% of its sales from emerging markets. That’s well above average compared to Unilever’s peers, and I expect the company to keep making the most of its 50 years or more of operations in India, China, Indonesia, Brazil and other emerging markets.

Get paid back

When you’re stocking up your ISA this year, why not look for stable businesses that can grow — and pay you an income just for owning them!

Right now Unilever is paying a 3.6% dividend, which is nearly 30% higher than the FTSE 100 average. And Unilever’s payout is covered 1.5 times by the its free cash flow, making it a pretty safe and reliable payout for shareholders.

Unilever has increased its dividend payout every year for more than 20 years, and it’s done this while retaining strong free cash flow — making it one of the more attractive dividend-payers out there.

What’s it worth?

Unilever’s share price has fallen by around 15% from last year’s peaks, meaning opportunistic long-term investors could be looking at a great time to buy in.

Unilever’s shares still trade at a lofty P/E of 18 times 2014 forecast earnings, which is ahead of the FTSE average of 14.8 times forecast earnings.

But I think you should look at Unilever as a long-term play. There could be some short-term pain as emerging markets slump, but Unilever is a consumer staples stalwart with a history of strong performance — and reliable dividends — to keep shareholders happy.

When selecting shares for your ISA, you ought to think long term -- the real money isn’t made by selling every time there’s an incremental rise, not with those pesky trading fees. Instead, you should consider shares that you’re happy to ‘buy and forget’.

That’s why our top analysts scoured the FTSE 100 to bring you five names that they believe can form the heart of your portfolio, including a Big Pharma dividend champion, a giant with two billion consumers every day, an omnipresent high-street hero , a defensive Goliath and a power play with a 5%+ yield.

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The Motley Fool and Jill own shares in Unilever.