Snapshot of Trade:
I currently own 100 UL and 100 UN.
This stock was purchased pursuant to my dividend growth strategy: Item # 6 Common Stock Dividend Growth vs. Long Term Investment Grade Bonds (3/22/2010 Post)
Due to UL's current P/E and low anticipated growth rate, this purchase does not qualify under my Large Cap Valuation Strategy. Item # 3 Large Cap Valuation Strategy (May 29, 2010 Post); Item # 1 Large Cap Valuations (7/7/2010 Post)
Company Description: The Unilever group, Unilever PLC and Unilever NV, is a large consumer staples company operating in 190 countries.
Unilever has two sets of common shareholders that originate from its history. Unilever PLC is based in the UK and Unilever NV is from the Netherlands. A concise history can be found at Wikipedia. Unilever was formed in 1930 though the merger of Lever Brothers (U.K.) and the Margarine Unie (Netherlands)
Unilever's products are sold in more than 190 countries.
ADR for Unilever PLC (NYSE:UL)
ULVR: Ordinary Shares for Unilever PLC Priced in British Pence
100 Pence=1 British Pound
ADR for Unilever NV (NYSE:UN)
UNA: Ordinary Shares of Unilever NV Priced in Euros
Bloomberg Data for Euro Priced UNA
Bloomberg Data for Pound Priced ULVR
The ADR price for UN will reflect the UNA ordinary share price converted from Euros into USDs.
The price for UN has underperformed the UNA shares over the past three months due to the decline in the Euro vs. the USD, as shown in this chart:
The British Pound has declined over the past three months too, which negatively impacts the performance of UL compared to its ordinary share counterpart ULVR.
When buying an ADR, I will convert the ordinary share in its local currency into USDs.
On 10/23/14, the ULVR ordinary shares closed at 2,440 British pence or £24.4.
The shares rallied some after London's close before closing at $39.14.
If I took that same £24.4 and converted it into USDs when the Pound was stronger, say 6/30/14, the UL equivalent price would be $41.56. Currency Converter
Equality of Shares:
There is a unity of shareholder's rights agreement that makes the Unilever PLC and Unilever NV shares equivalent.
Long History of Brand Acquisitions-Financial Heft to Grow
Some of Unilever's major acquisitions include Chesebrough-Pond's in 1987 for $3.1B (Vaseline, Ragu and Pond's skin care products); Helene Curtis in 1996; Slim Fast and Ben and Jerry's in 2000; and Alberto-Culver for $3.7B in 2010.
Unilever will frequently sell parts of a business it acquires, either soon after an acquisition or years later.
I recall the Chesebrough acquisition in 1987. Unilever quickly sold Stauffer Chemical, a subsidiary of Chesebrough, for $1.69B to the U.K.'hs Imperial Chemicals. Chesebrough also owned Bass Shoes, which was sold to Phillips Van Heusen for $79M. Chesebrough also owned Prince Tennis, which was also sold after Unilever's acquisition.
Unilever has a large number of brands, though many of them would not be recognizable to a U.S. resident who has not traveled abroad. The main U.S. brands include Lipton ice tea, Pond's, Vaseline, Dove, Knorr, Hellmann's, Ben & Jerry's, Breyer's and Alberto VO5
Some Recent Brand Disposals:
In October 2014, Unilever sold its global Slim-Fast business. Financial terms were not disclosed with that deal was announced. WSJ The U.K. pape The Telegraph mentioned that Unilever was reportedly asking £1 billion, but was not likely receiving that much.
In June 2014, Unilever sold its North America pasta sauce business under the Ragu and Bertolli brands to Mizkan Group for approximately $2.5 billion.
In August 2013, Unilever announced an agreement to sell its Wish-Bond and Western dressing brands to Pinnacle Foods for cash in the approximate amount of $580 million.
In January 2013, Unilever completed the sale of its global Skippy (peanut butter) business to Hormel for approximately $700 million.
Emerging Market Positioning: As of March 2014, approximately 57% of Unilever's sales were in emerging markets. Page 6 Introduction-to-Unilever
Over the past twenty years, revenues have consistently grown in emerging markets.
Emerging markets generate about 50% of Colgate's revenues and 39% of P&G's sales.
The Long Run Data website (Calculator) shows the following growth rates for the UL dividend through 10/24/14:
5 Years: 6.93%
10 Years: 8.48%
25 Years: 9.76%
It is noteworthy that the dividend growth rate is slowing down some. At a 7% compounded growth rate, the dividend will double in about 10.24 years, whereas doubling will occur in about 7.44 years at a 10% compounded growth rate. Compound Interest
The company calculates dividend growth at 8% CAGR from 1979 through 2013: Introduction to Unilever at page 38
I am providing links to the dividend history for both the Unilever ordinary shares and their respective U.S. listed ADRs.
Dividend History for Ordinary Shares of Unilever PLC: PLC share dividend history
Dividend History for Ordinary Shares of Unilever NV: Unilever Website
I can confirm based on my own ownership history that the U.K. does not withhold a tax on dividend payments made by UL, while the Netherlands will withhold 15%.
Broker Recommendations (as of 10/25/14):
Morningstar rated both UN and UL at 4 stars with a consider to buy price at $30.8 and a fair value price at $44.
Deutsche Bank reiterated its buy recommendation after Unilever reported sluggish third quarter results that led to a market sell off.
S & P gives the stock a two star rating with a $35 price target. The price target was recently reduced from $39 after being reduced to $39 from $46 back in June.
A journalist for the U.K. paper The Telegraph was possibly the most pessimistic about Unilever's valuation based on its growth prospects, assigning a £24.5 price to the ULVR shares.
Current Unilever Share Positions: I had a profit in a 100 lot of Unilever NV (UN), which was bought in September 2013; and now I have an unrealized small loss.
I am reinvesting the UN dividend to buy more shares.
That lot is owned in what I call a satellite taxable account created when my certificates of deposit from a related online banking account matured, and I refused to roll them over at negative real return interest rates.
My Prior Unilever Share Sales: I have realized some odd lot trading profits since 2005 that totaled $326.5, as shown in the snapshots in the September 2013 post.
2014 Third Quarter Sales Report: Unilever laid an egg in the third quarter report which contains information about sales rather than earnings. Earnings are reported semi-annually.
Underlying sales growth slowed to 2.1% in the third quarter. (.3% in volume plus 1.8% in pricing)
The following table may need some interpretation:
USG: Underlying Sales Growth
UVG: Underlying Volume Growth
UPG: Underlying Price Growth
None of the foregoing categories are showing good volume growth, though the USG for home health care was a respectable +5.7%.
The food category had a .5% decline in growth with a negative volume of -.9% offsetting a .4% price increase.
The most damaging part of the report to the share price was the 20% decline in revenues from China. Unilever blamed an inventory run down by large retailers worth about $126M. Unilever expects this destocking to continue through year end. Nestle noted that destocking in China too.
Other Asian markets experienced strong growth including Indonesia and the Phillipines.
European sales had a tough quarter, experiencing a 4.3% decline, but North America sales at least returned to growth with a +.6% increase.
Latin America sales grew by 12.4%, mostly due to price increases.
Still, even with that hit, emerging markets sale's growth was +5.6% for the quarter.
As noted in a Bloomberg article, this last quarter represented the slowest rate of growth since 2009.
Trading Statement Call, Oct 23, 2014 | Seeking Alpha (noted that European recovery "is faltering and "fortunately, in North America, the economic picture is a bit better"; current slowdown in "emerging markets is cyclical, not structural"; "currency headwinds are easing")
The UL shares declined $1.24 per share, or .0306%, in response to this release, closing at $39.14 on 10/23/14. The UN shares declined 2.54%.
RATIONALE FOR BUYING MORE SHARES:
1. Unilever is Strong Financially and a Sleep Well at Night Holding
Unilever is a large; financially stable consumer products company with a growing presence in emerging markets.
The senior debt is rated A1 by Moodys and A+ by S & P. FINRA
I have no concerns about Unilever surviving for the remainder of my life.
Unilever is one of the large companies that have benefited from the abnormally low rates.
Unilever sold $750B of senior notes, maturing in 2019, at a 2.2% yield. Prospectus
In July 2013, the company sold €750 million Euro 1.75% fixed rates bonds maturing in 2020.
Unilever sold back in March £250M "green bonds" with a 2% rate and maturing in 2018. Press Release
Unilever is the European version of Proctor and Gamble, which I have owned more often and in larger quantities.
Some of the well known brands in the U.S. include Lipton Tea, Ben & Jerry's ice cream, Hellmann's, Ponds skin products, Knorr, Dove and Vaseline. View brands | Unilever Global
A number of the major brands are known primarily outside the U.S.
Unilever has 14 brands each generating more than 1 billion euros in sales per year. Unilever facts
2. Unilever's Stock Has a Good Current Dividend Yield Plus Dividend Growth:
The next quarterly dividend payment will be U.S. $.3637 for both share classes, payable on 12/10/14. The ex dividend date will be 11/5/14.
When that dividend is paid, the total amount paid for 2014 will be $1.5071. At that annual rate, the dividend yield would be about 3.84% at a total cost of $39.25 per UL share. That starting yield for a new purchase satisfies my dividend growth strategy requirement of at least a 3% current yield.
The rate paid to the ADR owners will be the same for UL and UN, though the amount will vary each quarter based on the exchange rate.
Since I bought this last lot in an IRA, I elected to buy the UL shares since no foreign dividend tax is collected by the United Kingdom.
I bought a small lot of UL shares in March 2009. My total constant cost basis for the shares is $18.16.
Snapshot as of 10/24/14 Close:
At that cost number, the yield based on the annual 2014 rate is 8.3%. The best time to buy, or to add to a consumer staple stock is after a catastrophic stock market event such as the one recently experienced after Lehman's failure in September 2008. In effect, that lot has become bond like for me.
3. Unilever has a Large and Growing Presence in Emerging Markets:
The main reason for buying Unilever is its significant and growing presence in emerging markets. The growth in sales is coming from those markets.
Emerging markets will be where multinational consumer products will generate sales growth. Unilever already generates approximately 57% of its revenues in those markets and has a long standing presence in the major ones.
In prior posts, I have cited a number of articles describing the parabolic growth of middle class consumers throughout the developing world. Two of those publications originate from Ernst & Young:"Rapid Growth Markets" and "Middle class growth in emerging markets" Another is the November 2013 update made by Standard Chartered to its ongoing Super Cycle reports.
4. The Recent Price Decline Makes the Shares More Attractive
Recently, the UN shares have pulled back from a recent closing high of $44.31 on 6/23/14: Price History
The shares have declined about 16% through last Friday's closing price of $37.21 from that $44.31 price. I viewed the shares as overpriced at $44.
The current UN consensus E.P.S. estimate for 2014 is $2.11 and $2.27 for 2015. UN Analyst Estimates
Assuming $2.27 proves prescient, and the estimates have moved down some over the past year, the forward P/E multiple at a total cost of $39.25 is about 17.29, near the top of my fair value range of a slow growing consumer stable company. The growth rate Y-O-Y with both the 2015 and 2015 estimates proving to be accurate would be about 7.58%. These large consumer staple companies will generally have single digit revenue and profit growth.
5. Steady Price Appreciation Over Time:
Yahoo Finance will also display a UN chart going back to 1985 which is interesting for those interested in long term investing and possible entry points for consumer staple stocks. UN Interactive Chart If that chart does not display, just click "max".
The price was $1.67, adjusted for 3 stock splits, in early 1985. (if stock splits do not display, then just click the "events" tab and then click "splits") The splits were 5 for 1, 4 for 1 and 3 for 1.
For anyone desiring to start a position, the period between 1999-2000 and 2008-2009 would have provided attractive entry points. I have previously noted that consumer staple stocks are on my buy list whenever there is a cataclysmic stock market decline (one greater than 45%)
Lastly, another interesting point revealed by this chart is that Unilever topped out in December 1998 and had experienced a serious decline before the major averages started to decline. Coca Cola hit a higher price in 1998 than the current price. Just something to keep in mind. The Nasdaq Composite continued to move skyward, hitting a high of 5,046.86 on 3/9/2000 (Historical Prices) While it is hard to believe now, that average was hovering just over 2000 in December 1998. Historical Prices
Risks: Recessions and bear markets will knock down the stocks of consumer staple stocks, but generally not by the same percentage amount as the overall market. I previously sold Unilever stock at over $26 in 2007 and then bought the shares back at $18 during March 2009.
Few stocks will buck the downtrend during a bear market and far fewer will even maintain their value during the catastrophic bear markets such as the ones experienced between 1929-1932, 1974 or September 2008-March 2009. Consumer product stocks will be hit during those types of down markets.
A brand product company like Unilever is subject to competition from store brands and cheaper brands. The large competitors of Unilever have financial heft and are competent competitors.
A rise in commodity costs can squeeze margins.
Currency conversions can artificially inflate or deflate earnings and revenues.
As a buyer of Unilever's ADS shares using USDs, I am still subject to currency conversion risk as shown in the preceding tables.
An investor does not avoid currency risk to the share price by using USDs to buy a U.S. listed ADR.
The recent decline in both the Pound and Euro against the USD has caused the ADRs, UL and UN respectively, to underperform their ordinary share counterparts.
Some of the negatives, including last year's emerging market currency problems, are discussed by Zacks when that firm downgraded Unilever to underperform (August 2013)
Future Buys and Sells: Given the risks outlined above and the less than satisfactory third quarter report, I am not inclined to add more shares without a further price decline.
I will keep reinvesting the dividend on the UN shares.
I have not reinvested the dividends paid by the 70 share UL lot since I my March 2009 purchase.
I may round that lot up to 100 shares by purchasing another 30 shares when and if the share price sinks below $37. That would be an average up.
I may average down on the 100 share UN lot at below $35.
Unilever is one of my core holdings.
Disclosure: The author is long UL, UN.
Additional disclosure: Disclaimer: I am not a financial advisor but simply an individual investor who has been managing my own money since I was a teenager. In this post, I am acting solely as a financial journalist focusing on my own investments. The information contained in this post is not intended to be a complete description or summary of all available data relevant to making an investment decision. Instead, I am merely expressing some of the reasons underlying the purchase or sell of securities. Nothing in this post is intended to constitute investment or legal advice or a recommendation to buy or to sell. All investors need to perform their own due diligence before making any financial decision which requires at a minimum reading original source material available at the SEC and elsewhere. Each investor needs to assess a potential investment taking into account their personal risk tolerances, goals and situational risks. I can only make that kind of assessment for myself and family members.