Friday, January 20, 2012

Unilever (UL) for International Dividend Diversification

Unilever PLC (UL) provides fast-moving consumer goods in Asia, Africa, Europe, and the Americas. This international dividend achiever has paid uninterrupted dividends on its common stock since 1937 and increased payments to common shareholders every year since 1999.

The most recent dividend increase was in June 2011, when the Board of Directors approved an 8.20 % increase in the quarterly dividend to 22.50 euro cents/share. Unilever’s largest competitors include Procter & Gamble (PG), Kraft (KFT) and Nestle (NSRGY).


Over the past decade this dividend growth stock has delivered an annualized total return of 10.30% to its shareholders.

The company has managed to deliver a 15.50% annual increase in EPS since 2001. Analysts expect Unilever to earn $2.20 per share in 2011 and $2.40 per share in 2012. In comparison Unilever earned $1.94 /share in 2010.

A large portion of the company’s revenues come from Emerging markets, where sales growth is expected to continue at a high single digit to a low double digit rate of increase. The company has also been able to pass on increases in prices of raw materials onto consumers, who purchase its branded products globally. The risk behind this strategy is if Unilever increases prices to rapidly, sales volumes might suffer as a result. Typically however, while the market for food and personal consumer products is highly competitive, demand is stable and relatively immune from economic stress. The company’s strategic plans have revealed that it expects long-term sales growth of 3%- 5% per year.

The company’s Return on Equty has followed an upward trend from 20.30% in 2001 to 33.20% in 2010. Overall, despite volatility, this indicator has remained at high levels over the past decade. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.

The annual dividend payment has increased by 11.20% per year since 2001, which is in line with the growth in EPS. With international dividend achievers, it is important to look at the trend in distributions in their base currencies. Despite the fact that the annual dividend payment appears volatile in US dollars, the growth in distributions in UK pounds has shown a consistent upward trend in distributions.

An 11% growth in distributions translates into the dividend payment doubling almost every six and a half years. If we look at historical data, going as far back as 1988 we see that Unilever has actually managed to double its dividend almost every seven and a half years on average.

The dividend payout ratio has been on the decline over the past decade. It fell from a high of 80% in 2001 to 57.60% in 2010. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

Unilever is a company that is headquartered in the UK and the Netherlands. In this analysis I am concentrating on the British based, American Depositary Receipts. Unilever operates as a single business entity. However, there are two owners: Unilever (NV) and Unilever (PLC) which are the two parent companies of the Unilever Group, having separate legal identities and separate stock exchange listings for their shares. You can find Unilever shares trading on NYSE as (UN) or (UL) representing NV and PLC respectively. By investing in the UK shares, I am avoiding foreign withholding of my dividends.

Currently Unilever is attractively valued at 15.90 times earnings, has a sustainable dividend payout and yields 3.60%. I would consider adding to my position in the stock on dips.

Full Disclosure: Long UL, KFT, NSRGY and PG

Relevant Articles:

- Nestle (NSRGY) Dividend Stock Analysis

3 comments:

  1. Is there a good source on the internet where information is updated regularly regarding the health of a dividend measured by the criteria that you look at personally. Thanks

    ReplyDelete
  2. Will a portion of the dividend be held for foreign tax?

    ReplyDelete
  3. thanks so much for your analysis. Could you please tell me where you get your dividend information, and how you calculate the dividend increase of 11.20% per year since 2001? I get 12.09%, so I'm thinking I'm doing something wrong. I have the same error for other stocks too. I've pulled my info from yahoo finance. Thanks!

    ReplyDelete

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