The thing about Unilever (LSE: ULVR) (NYSE: UL.US) is that there always seems to be a good reason to buy it, and all of the reasons seem to make it look good whatever the overall economic climate.
Now, I do think there are reasons to be cautious about buying Unilever, and there is a price that’s too high for any share no matter how good it is. But here are three key strengths:
1. Ubiquity
By that, I mean that Unilever’s products are everywhere, all the time. In recent years my wife has bought Sunsilk shampoo in Thailand (if you saw my head you’d know why I don’t use it), I’ve bought Lynx deodorant in Cambodia, and I’ve even used Hellmann’s mayonnaise in the far-flung remoteness of Merseyside.
People eat, they wash, they clean their homes — and Unilever is there to satisfy those needs.
2. Defensiveness
That makes Unilever a defensive investment. During hard times, people will spend less on the latest fashions, stay at home rather than go on hols, and so on. But they won’t stop eating, won’t stop washing, and won’t stop keeping their homes clean.
People might move to less fashionable and cheaper products — but Unilever’s brands cover all price points.
In 2009, the year that so many companies were facing crisis, Unilever recorded a pre-tax profit of £4.9 billion!
3. Cash
With such brand and geographic diversity in a retail market, Unilever just throws off cash — with first-half results delivered in July, chief executive Paul Polman emphasized “…steady and sustainable core operating margin improvement and strong cash flow“.
And that cash ends up in shareholders’ pockets, with Unilever’s dividend steadily rising year-on-year and being adequately covered by earnings. This year there’s a 3.5% yield forecast, with 3.8% penciled in for next year.
Too pricey?
That yield is on a share price that some would consider a bit high. It’s at 2,556p as I write, giving us a forward P/E of almost 20. And that’s my only reservation — the shares perhaps look a bit overpriced at the moment.
But then, Unilever shares do seem to trade at a premium to the market average, and they’re still beating the FTSE’s average dividend yield.
