My top FTSE 100 stock for passive income is Unilever (LSE: ULVR), the fast-moving consumer goods company. I’d buy some of the shares now and collect passive income in the form of the company’s regular shareholder dividend payments.
A growing passive income from the dividend
I admit it hasn’t got the highest dividend in the FTSE 100. With the share price at 3,503p, the forward-looking yield is just under 4.3% for 2023. It’s not the chunkiest, but I think it’s worth having.
Indeed, the shareholder payment has been stable for several years. And it’s been growing. For example, in 2016, the total payment for the year was around 106p. And City analysts forecast the 2023 payment to be about 149p. Of course, like all forecasts, this could change based on future developments and is not something to rely on.Â
Those figures take account of today’s euro/pound currency exchange rate. That’s because Unilever reports its financial figures in euros while the share price is measured in pounds.
Based on that multi-year period, the compound annual growth rate (CAGR) of the dividend has been running at just over 6% a year.
And the dividend record has some solid backing from the firm’s other financial figures. Over the same period, the operating cash flow delivered a CAGR of more than 4%. Net profits have chalked up a CAGR of more than 3% and earnings per share have been running at around 7.5%.
And it’s the consistency in the financial and trading record that attracts me to the business. Other FTSE 100 firms may have higher dividend yields but the question then becomes, are they sustainable? And in many cases, the answer is no.
Not all company dividends are reliable
For example, cyclical outfits such as banks, oil companies, miners, and others can suffer from famine-or-feast economics. And it’s not uncommon to see their dividends here today and gone tomorrow.
But Unilever has what many investors describe as a defensive business. In other words, its operations tend to be less affected by the ups and downs in the general economy. And the reason for that is the strength of its many consumer brands.
In February with the full-year report, the company posted its “fastest underlying sales growth for nine years”. Sales grew by 4.5% compared to the prior year with 1.6% of the increase from higher volumes.Â
Challenges
However, the business does face challenges in the current economic environment. And chief executive Alan Jope said the biggest in 2021 was the “dramatic rise of input costs”. However, the company responded by raising its selling prices. And that’s one of the key abilities needed for a business to survive and thrive during periods of high price inflation.
But the cost of living squeeze could drive some customers away from the company’s brands to cheaper alternatives. Nevertheless, I’m encouraged by the confidence the directors displayed when announcing a €3bn share buyback programme. The buybacks have already started and could help to support the share price in the months ahead.
Unilever stock is well off its 2019 highs above 5,000p. And over the past year, the share price has fallen by around 15%. Nevertheless, I view the business as a quality operation and the valuation — as represented in the dividend yield — hasn’t been as low as it is now for years. I like Unilever now and would buy the stock to hold for the long term and collect passive income.