Unilever PLC (NYSE: UL), the British personal products giant, is one of those high yielding dividend stocks that belongs in every income investor’s portfolio for the long term. As with all investing, the question becomes when to buy.
That time could be fast approaching as Unilever is trading close to its 52-week low.
While it could go even lower, Unilever PLC now has a dividend yield of 3.7%, almost twice the average of the Standard & Poor’s 500 Index (NYSE: SPY).
The dividend yield isn’t the only thing that’s superior with Unilever. The profit margin is about twice as high, too.
Warren Buffett generally looks for stocks with a return-on-equity of at least 20%. The return-on-equity for Unilever PLC is more than three times that mark, at 70.1%.
So why is Unilever down 13.6% in the last six months? Unilever PLC sells consumer goods on a global basis from its London headquarters. The world’s economy, notably China and India, is still struggling to recover from The Great Recession. That is dragging down the performance of Unilever PLC and others in the consumer goods sector.
But that current weakness is also Unilever’s biggest strength for the future.
When global consumer spending surges again, Unilever is positioned well to prosper.
The McKinsey Global Institute, the research arm of McKinsey & Co., the consulting firm, projected in its report, “Winning the $30 Trillion Decathlon,” that consumer spending in emerging market nations will soar to $30 trillion by 2025 (the gross domestic product for the United States is around $15 trillion). Because Unilever PLC sells prominent consumer brand names such as Dove, Lipton, Hellmann’s, and many, many more in over 190 countries, it should benefit when the global economy is healthier.
At present, Unilever PLC trades around $39.25 a share.
The mean analyst target price for Unilever PLC over the next year is $45.35. The 52-week high is close to that at $45.17. That means UL shares have at least 15% upside from here.
While no one knows when the stock price will rise, the dividend outlook for Unilever PLC is demonstrably bullish.
|Dividend Yield||Profit Margin||Payout Ratio||Dividend Five Year Growth Rate (Annually)||Earnings-per-Share Growth Past Five Years||Earnings-per-Share Growth Rate Projected for Next Five Years|
Source: Finviz, GuruFocus
You can see from the low payout ratio and high profit margin that Unilever PLC easily makes enough money to continue increasing its dividend. Over the past five years, when earnings-per-share were down by one percent, the dividend grew by an average of 6.8% a year. It’s projected to grow another 4% annually over the next five years. That is very bullish for both the stock price and the dividend yield.
To a degree, the personal products sector is much like commodities such as oil and copper. All depend on strong consumer demand for growth.
At present, that demand is not coming from the bulk of the world’s population in China, India, and other emerging-market nations. When it does, Unilever PLC should ride the wave. In the meantime, Unilever’s dividend growth should pay for investors to accumulate shares of the stock while they wait for the big splash.
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