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Unilever - Dividend Yield

Discussion in 'General Share Chat' started by ADrunkenMarkus, Jul 3, 2016.

  1. ADrunkenMarkus

    ADrunkenMarkus A Legendary Member

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    Unilever reports earnings and declares dividends in Euros. The company's share price was around 3200p before the Brexit vote but has risen to 3620p: a gain of over 13 percent in a short period of time.

    Nonetheless, it's easy to make a case that it's not over-valued. The Euro-Pound exchange rate is currently about 0.84 cents to the Pound. On a quarterly dividend of 32.01 Euros per share, the annual dividend in sterling is about 107.5p, representing a dividend yield of about 3 percent even at today's prices.

    The company usually raises its quarterly dividend early in the calendar year and then pays the same level in Euros for June, September, December and March. Assuming another 6 percent increase for 2017, as they have done for a few years now, then we would see a forward dividend of about 33.93 Euros per share (annual 114p at current exchange rates or as much as an annual 122.1p if the exchange rate weakened to 0.90 cents to the Pound).

    I see some brokers are setting target prices above 3900p. Leaving aside other factors, the dividend seems reasonable even at that level. The 114-122.1p range assumed above would support a 3800-4070p share price if we had a 3 percent dividend yield. Unilever is, arguably, 'expensive' on a number of measures but long-term investors still have an opportunity to initiate a position in a great company IMHO.

    I bought a holding in 2013 with the intention of holding for decades - barring events! - and so far I have seen a 16 percent CAGR on a total return basis. I don't think that rate can be sustained at quite such a high level, but a double-digit CAGR seems achievable and indeed Unilever managed this from 1984-2010.

    Best wishes


    Mark.
     
    Last edited: Jul 3, 2016
    Starburst likes this.
  2. Mongoose82

    Mongoose82 A Legendary Member

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    update from AlphaValue:

    Https://www.research-tree.com/compa...great-q2-cost-efficiencies-pay-off-21-07-2016

    "Unilever released its Q2 results. The underlying sales grew +4.7% at constant FX with volumes up +1.8% and pricing at +2.8% (cons. +4.4%). On reported figures, sales were down -3.2% (FX: -8.1%, net acquisitions: 0.7%). USG by division: PC +5.6% (good performance with good volumes), Foods +2.7% (still negative volumes), Refreshments +4.2%, HC +6% (price-driven). Overall, in H1, underlying sales were up 4.7%. The core operating profit in H1 was up +50bp to 15% (cons. +30bp). The gross margin improved by 80bp to 42.7%. By region, Asia/AMET/RUB delivered +5.9% USG, the Americas delivered +6.4% (uniquely price-driven), Europe stood at + 0.8% (with negative pricing)."
     
  3. ADrunkenMarkus

    ADrunkenMarkus A Legendary Member

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    There's a lot to like in the recent results. I am still digesting but price and volume growth together plus margin expansion is quite welcome!

    Best wishes


    Mark.
     
  4. Mongoose82

    Mongoose82 A Legendary Member

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    Update from Beaufort

    "Unilever delivered strong performance in H1 2016 despite a difficult trading environment with weak global economic growth and geopolitical tensions. The company reported an increase in underlying sales, as it sold more products at higher prices. Unilever's largest segment, Personal Care led the growth, amid increases in volume and prices. Volumes in the Foods business dropped, but Unilever offset it by raising prices. Emerging markets recorded 8.0% underlying sales growth, driven by strong volume growth in Asia and price growth in Latin America. Unilever recorded margin improvement due to its various cost-savings initiatives. During H1 2016, the company undertook steps to shift its product portfolio away from food, which recorded slower sales, to higher-margin personal care products. Earlier this week, Unilever disclosed that it would buy subscription razor company Dollar Shave Club for US$1bn. This would enable Unilever to increase its presence in the expanding market for male grooming products and effectively compete with Procter & Gamble. Given Unilever's fundamentally sound position and the strength of its brands across markets, we remain optimistic about the company's prospects."

    Https://www.research-tree.com/Company/GB00B10RZP78
     
  5. ADrunkenMarkus

    ADrunkenMarkus A Legendary Member

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    Thanks for the update. I bought Unilever in 2013 and have enjoyed a low teens CAGR in total return terms. It's one of my largest holdings. It has recorded a 22.5 percent average Return on Capital Employed since 2000 and I believe it has a long term, beneficial culture and enduring competitive advantages.

    The argument these days often seems to surround valuation and the 'expensive defensives' debate. Nonetheless, I think the following is worth bearing mind:

    In December 2011, Evenlode (Wise Funds) did a returns and attribution analysis for a number of 'quality' companies over the preceding ten years. At their start point, Unilever was trading at a PE of about 18, and it contracted to 14.5 by 2011. They opined: 'Back in December 2001, Unilever was heavily indebted (£14bn net debt) after its Bestfoods acquisition, and referred to by many as a branch of the British civil service – slow to make decisions, lacking focus etc.' It was also 'expensive'. However, their analysis showed that Unilever achieved a 143 percent total return in the period - almost 2.5 times the market's 58 percent. This came from sales growth (34 percent); operational/financial leverage (68 percent); dividends (63 percent) and then a negative contribution of -22 percent from the contraction of the valuation multiple. They argued:

    'Unilever’s sales over the last ten years have been unremarkable at +3.0% per annum (we think the business can do significantly better than this over the next decade)...A great characteristic of Unilever, which we look for in all the businesses we invest in, is its ability to grow without much need for incremental capital. This leads to very high returns on equity, and lots of excess cash flow. Thanks to this characteristic, Unilever has been able to pay a high and growing dividend, whilst also paying down debt levels by more than £8bn...
    '...Many analysts would have suggested selling Unilever in 2001 because of its high PE multiple. However, they would have been right in detail but wrong in substance. The PE multiple has indeed fallen but, despite this, the stock has still outperformed the market by nearly +5% a year, due entirely to the solid fundamental progress it has achieved.'​

    Best wishes


    Mark.
     

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