Unilever (LSE: ULVR) (NYSE: UL.US) shares are up 10% over the past 12 months against just 3% for the FTSE 100 average, and that’s nice.
But it’s not such short-term fripperies that interest me. In fact, on that basis the shares are on a forward P/E of nearly 21 on full-year forecasts, and that’s some way ahead of the FTSE’s long-term average of 14. The predicted dividend yield, at 3.3%, is barely ahead of average, and there’s no earnings per share (EPS) growth indicted for 2014 either.
On those figures alone, Unilever is not a share to buy.
Trouncing the FTSE
But look back over the longer term, and we see significant outperformance.
Over the past five years Unilever shares are up 65% against not much more than half that for the FTSE. And over ten years, we’re looking at 150% for Unilever compared to 50% for the FTSE.
Looking closer during the stock market crash that started in mid 2007 and didn’t hit bottom until early 2009, Unilever shares fell considerably less than the index as a whole.
On top of that, while dividend yields haven’t exactly been smashing the FTSE average of around 3%, they have been rising ahead of inflation — and that’s vital if you want long-term income.
All of that, I think, shows Unilever’s key attraction for long-term investors — it’s reliable and safe. And it’s easy to see why.
Diversity
Unilever manufactures a huge number of products in the food, cleaning and personal care markets, and those are things that people just don’t cut back on in hard times. Lipton, Wall’s, Knorr, Hellman’s, Lux, Cif, Sunlight, Dove, Sunsilk, Flora and Domestos — they’re all there, together with many more. In fact, around a dozen of Unilever’s brands bring in annual sales of more than £1 billion each.
The firm’s other key strength lies in its global reach. In 2013, only around a quarter of turnover came from Europe, with a third from the Americas (including South America). The rest was from Asia, Middle East, Turkey, Africa, Russia… all over the world, in fact. So growing global prosperity will drive Unilever’s future growth too, and it will reduce its volatility due to more local economic problems.
And that reach is ever extending. At first-half time this year, Chief Executive Paul Polman told us that “we continue to invest for the long term with our programme to take our brands into new countries with the launches of Lifebuoy in China, Omo in Arabia and Clear in Japan.“
The key…
He went on to say “We remain focused on achieving another year of profitable volume growth ahead of our markets, steady and sustainable core operating margin improvement and strong cash flow“.
And that sums it up for me — long-term growth ahead of the company’s markets.