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Unilever (UL) Dividend Stock Analysis

January 14, 2011 | About:
Dividend Growth Investor

Dividend Growth Investor

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Unilever PLC provides fast-moving consumer goods in Asia, Africa, Europe, and Latin America. This international dividend achiever has increased distributions for over one decade.


Over the past decade this dividend growth stock has delivered an annualized total return of 7.70% to its shareholders.


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One odd fact about Unilever is that it trades 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. (source)

The company has managed to deliver an average increase in EPS of 19.30% per year since 2000. Analysts expect Unilever to earn $2.28 per share in 2010 and $2.22 per share in 2011. This would be a nice increase from the $1.62/share the company earned in 2009. The large annualized increase in earnings per share was mainly due to the fact that EPS was depressed in 2000 and subsequently recovered. Future growth in EPS would depend on how the company balances its pricing with the need for volume growth in its segments. The company has a target growth in sales of 3%- 5% per year. It has been active in the acquisition front, most recently by acquiring Alberto Culver (ACV) and Sara Lee’s (SLE) body care business unit.

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The company has a high return on equity, which has remained above 27% for the latter part of 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.

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The annual dividend payment in US dollars has increased by 10.10% per year since 2000. A 10% growth in distributions translates into the dividend payment doubling every seven years. With international dividend achievers, it is important to look at the history of dividend increases in the local currency, in order to avoid any confusion about the volatility of US dollar dividend payments, caused by currency fluctuations. The company’s dividend history in British pounds shows consistent pattern of distribution increases since 1999.

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The dividend payout ratio has decreased steadily over the past decade, although it stayed below 50% only in 2008. Based off forward FY 2010 EPS however, the dividend is adequately covered from earnings. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

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Currently, Unilever is attractively valued at 13.50 times 2010 earnings, yields 3.80% and has a sustainable dividend payout. I would continue monitoring the stock and will consider adding to a position in the stock on dips.

Full Disclosure: Long UL

About the author:

Dividend Growth Investor
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Comments

graemew
Graemew - 3 years ago
I recently did an analysis of Unilever going through the annual reports on the main website from 2001 to present. I found the following data for eps in Euros:

2009 1.17

2008 1.22

2007 1.19

2006 1.15

2005 1.04

2004 0.93

2003 1.37

2002 1.04

2001 0.88

As you can see from these figures the company has had very low growth indeed since 2001 (when stated in euros) and I decided to sell out completely of my holding in Unilever. I switched to Nestle and to Reckitt and Benckiser which showed much higher growth rates.(Nestle around 8.5% and Reckitt and Benckiser around 19%)

Did I make a mistake somewhere? Does the translation into dollars actually result in such a huge difference in growth rates? One of us must be wrong in our analysis. Please let me know what you think. You can reply to me at redpaksun@yahoo.com. Thanks Graeme.
graemew
Graemew - 3 years ago
I have now had time to go back and check my figures. The figures are stated differently at different areas of the Unilever website. In the summary 2000-2009 data different figures are given for eps than if you check individual annual reports. In addition, there was a major change in reporting in 2004 when the company changed to IFRS reporting. Prior to 2004 it appears that certain non-recurring items were included in reported eps, but that this changed subsequent to 2004, with a very big difference (increase) in the reported earnings figures. Therefore it is not valid to compare eps data given before 2004 to that coming after, if attempting to calculate growth rates.

When checking the data stated in euros for eps from 2004 to 2009, it is clear that there was virtually no growth at all in eps...also operating income expressed in euros is flat from 2004 to 2009.

For 2010 it is likely that there will be a substantial increase in reported eps, however this is largely due to currency and other effects...real growth probably being more like a fair 7% or so...which is not so impressive when you are comparing 2010 to such a poor year as 2009.

It seems that investors are enthusiastic about a new CEO appointed in the last year or so...but I decided to sell out on this enthusiasm.

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