The share price performance of fast-moving consumer goods companies Reckitt Benckiser (LSE: RB) and Unilever (LSE: ULVR) over the past decade has been impressive. Both businesses have beaten the market many times over. They both have strengths as income buys. But which is the better dividend investment?
Reckitt Benckiser
Reckitt Benckiser has been one of the fastest growing companies in the FTSE 100. It has innovated better, and in a more targeted way, than any of its consumer goods rivals, rapidly expanding its product range and growing market share. Punchy marketing has reinforced its brands. Plus it is now expanding internationally, and is looking to emerging markets for the next stage in its growth.
Yet its most recent results have disappointed, with sales and revenues figures falling below consensus estimates. If you want to understand why this is the case, you need to look at the broader macroeconomic picture.
Most of Reckitt’s profits are made abroad, so the strength of sterling over the past year has really told. Also, emerging markets, where Reckitt Benckiser is trying to grow sales, have been slowing. What’s more, Europe, where currently the bulk of sales are made, is also experiencing a slowdown, if not an outright recession. And that’s not to mention a fiercely competitive retail environment, in the UK and globally (need I mention Tesco?)
However, most of these difficulties are just bumps along the road, and I am still positive about Reckitt Benckiser’s long-term prospects. But this might be the time the share price, which has increased so much, takes a breather. A 2014 P/E ratio of 20.1, falling to 19.7 in 2015, with a dividend yield of 2.6%, looks fully priced.
Unilever
Unilever is one of the FTSE 100’s most venerable companies. After a painful restructuring at the turn of the century, Unilever has also impressed over the last decade, growing revenues and profits.
However, like Reckitt Benckiser, most of Unilever’s profits are made abroad, with the bulk of its sales in Europe and emerging markets. Just like Reckitt Benckiser, almost all its sales are made through supermarkets.
So it’s not surprising that, after doing so well in recent years, Unilever’s Q3 results also disappointed, and the reasons are very similar to its competitor: currency strength, emerging markets, Europe and supermarket competition.
The underlying strength of this company is clear, but it now looks expensive, at a 2014 P/E ratio of 20.0 falling to 19.0 in 2015, and a dividend yield of 3.5% rising to 3.7%.
Foolish bottom line
Both of these companies are worthy candidates to be included in your high-yield portfolio. They are growing enterprises with a stable and rising dividend which are less prey to cyclical fluctuations. Both are on my watch list, but are currently rather pricey. I would only buy after a pullback.