Consumer staples stocks have proven resilient through choppy markets and have sailed strong in calmer seas; they are truly set-it-and-forget-it stocks, suggests Jimmy Mengel, editor of The Profit Sector.
Unilever (UL) is a global consumer goods company that produces things we all use: soap and lotion alongside ice cream, mayonnaise, and condoms. (Wow, now that I read it, that sounds like a very bizarre night if you’re using all those products at once).
Regardless of the economy and the market, Unilever will provide items guaranteed to sell. It also operates worldwide: Asia, Africa, the Middle East, Turkey, the Americas, and Europe.
They have spread out their risk regarding the global economy — all of their eggs aren’t in the US basket. Axe, Dove, Vaseline, Ben & Jerry’s, Lipton, and Dollar Shave Club are only a sliver of the big-time brands Unilever owns.
Now, Unilever's stock dropped ~6.4% last year, which isn't bad considering how the rest of the market got creamed. That resilience is due in part to some solid fundamentals.
For one, the company has a robust 3.5% dividend yield and a 23-year dividend growth streak. Two more years, and they’ll qualify as a dividend aristocrat. Unilever also has a great return on equity (ROE) ratio of 28%.
ROE is a simple formula that shows how well the company reinvests shareholder money. The formula is simple: net profit from continuing operations ÷ shareholders' equity. Anything between 15% and 20% is considered good. 28% is excellent.
Unilever also sports a safe payout ratio of 72% and has a five-year dividend compound annual growth rate (CAGR) of 7.7%. Here's a glimpse at their Q3 numbers:
- Underlying sales growth accelerated to 10.6% in the quarter, and sales guidance raised for the full year
- Price growth stepped up to 12.5% in the quarter, with volumes declining by 1.6%
- Turnover increased 17.8%, including a currency impact of 8.8% and (2.1)% from disposals net of acquisitions
- The billion+ Euro brands, accounting for more than 50% of Group turnover, grew 14%
These are all solid numbers; I expect them to improve as the fog is lifted from the rate hikes and supply chain issues. I’m confident that Unilever will weather any storms we may have this year and prosper well into the future.
