From personal care products such as Dove, Vaseline, Ponds, Axe, Suave, Caress and Q-tips to food products such as Ben & Jerry's, Breyers, Popsicle, Klondike (ice cream is definitely on my mind), Lipton, Ragu, CountryCrock, Skippy peanut butter, Knorr soups, Bertolli pasta and Slim-Fast, we have all either come across or used a product made by Unilever (NYSE:UL), the third largest food company in the world.
Maybe you live in India and have not heard of the rest of the brands beyond Dove, Axe, Ponds, Lipton and Knorr. Unilever through its subsidiary Hindustan Lever Limited, also makes the popular Indian brands such as Kissan, Bru, Brooke Bond, Hamam, Surf, Rin, Close-Up, Lux, Liril and Sunsilk just to name a few. The corporate structure of Unilever is not very straightforward with two parent companies Unilever NV in Rotterdam, Netherlands and Unilever Plc in London, United Kingdom. Our featured pick Unilever Plc, is an ADR of the London based Unilever Plc.
If you find the corporate structure odd, just try to figure out the actual annual dividend of Unilever. Because various financial websites like Reuters, MarketWatch.com and Yahoo Finance were giving me different dividend amounts and yields, I decided to try and track down the annual dividend myself. As you can see from this page on Unilever's website, the company usually declares two dividends called the interim dividend (usually paid around November) and a final dividend (usually paid the following June). For fiscal 2006, the company also paid an one-off dividend. The interim and one-off dividend for 2006 was 63.55 cents and as you can see from this article, the proposed final dividend is 32.04p or 63.54 cents. Hence the 2006 annual dividend would work to $1.27 and based on the current share price of $32.53, this works out to a dividend yield of 3.9%. Wasn't that a fun exercise to arrive at a number that was so readily and accurately provided by Yahoo Finance.
So what made me pick Unilever at this point? I was originally interested in Nestle, the world's largest food company, especially after its recent announcement to acquire Gerber from Swiss drug giant Novartis (NYSE:NVS) for $5.5 billion. The fact that Nestle (OTCPK:NSRGY) traded on the pink sheets did not deter me, but when I noticed that Unilever's dividend yield of 3.9% was much higher than Nestle's 2.17% (source adr.com), I started taking a closer look at Unilever.
Unilever, as a consumer staples company that also has a high dividend yield, was exactly the kind of company I was looking for at this point in the business cycle. Unilever recently reported first quarter 2007 results with underlying sales growth of 5.7% exceeding both company targets as well as analyst expectations. The company does have a high amount of debt with over $11 billion in short-term and long-term debt when compared to just under $2 billion in cash and investments but it also generated $6.265 billion in income in 2006.
With improving operating margins and the company confident in its ability to meet its 2007 targets, I believe that Unilever can be a good long-term core holding in a portfolio. I would however use caution while starting a position in Unilever as the stock has already appreciated almost 40% over the last year.
Unfortunately, Siegel doesn't give us the names of the Chinese and Indian El Dorados so that we can supplement the meager Social Security payments and have sufficient savings to live a dignified life in old age.
With a number of popular brands in India, both Nestle and Unilever along with the Tata group of companies could be considered the El Dorado's of India that are easily accessible to US investors without using global index funds.
UL 1-yr chart