Nothing lasts forever, as anybody who thought the Unilever share price would climb endlessly upwards has now discovered. This FTSE 100 dividend growth hero has performed poorly over recent years, and some investors have abandoned it all together. Not me. In contrast, I reckon now is a great time to buy rather than sell.
Household goods giant Unilever (LSE: ULVR) is much admired by investors because it offers a wide range of branded everyday products that billions of global consumers purchase on a daily basis. Soap, toiletries, deodorant, Bovril, it’s got everything. It has also delivered a winning combination of rising share price and dividend income, through good times and bad.
Still one of my favourite FTSE 100 stocks
The Unilever share price has typically been a bit expensive, trading at around 24 times earnings. Rapid share price growth also meant the dividend yield looked relatively low, typically 2.5% or lower. Things have changed now.
The Unilever share price has fallen more than 12% over the last year, as rising commodity costs eat into margins. This isn’t a one-off slip. Over the last five years, the stock is up a disappointing 13%.
Big investors are sceptical. Investment bank UBS has warned of deteriorating market share, as rivals P&G, Loreal and Nestle plan to ramp-up marketing spend. Unilever has been forced to push up prices to boost margins, and that could hit sales. Cost inflation may force further hikes.
The pandemic has squeezed the Unilever share price from two sides – home care sales have fallen as Covid recedes in Europe, while a resurgence in Asia has hit general sales. Yet I reckon current uncertainty is an opportunity rather than a threat.
This £100bn FTSE 100 giant has the experience and resilience to muscle its way through current problems. Its brand portfolio remains impressive, and the pandemic will not last forever. Personally, I have no idea how enduring inflation will be. Yet investors seem to be pricing in quite a lot of damage, and this is opening up an opportunity for investors.
I’d still buy the Unilever share price
Unilever is down today but history suggests this is when you want to buy it. Instead of paying top dollar when the group is trading close to 25 times P/E , I’d rather fill my boots at today’s relatively modest 18.68 times earnings.
Another attraction is the yield. Right now, the Unilever share price comes with a dividend income of 3.77%. That’s higher than I’ve been used to seeing over the last decade. Management has always had a progressive attitude to increasing shareholder payouts, so that passive income will grow over time.
I would never buy any individual company stock with a timeframe of less than five years (and ideally much longer). Yes, management faces plenty of challenges problems, but today’s troubles won’t last forever. Nothing does. When they pass, the Unilever share price should rise again. In the meantime, I’ll keep on investing my dividends.