Under the current economic climate where we have trade tensions and uncertainties, you will be forgiven for wanting to sit on your hands and see how things play out before making any new investing decisions. While that is an option, the volatility has created lucrative opportunities to buy solid companied at an attractive price, and if we were to focus on companies which have strong balance sheets, the ability to cover their dividends twice with a handsome yield then Brexit is no longer an issue but a welcomed opportunity. On the lower risk and safer side of things let’s looks at a company which possesses the kind of defensive attributes which can make investors feel comfortable. A stock that is able to sustain market fluctuations with an inelastic nature of demand. This means that regardless of price changes in the company’s products or market turmoil, the products or services will always continue to be purchased as they are a necessity. The company in this case is Unilever. As you're probably aware Unilever (LSE:ULVR) is a consumer goods company which manufactures food and beverages, beauty products, cleaning agents and personal care products. It is the eighth most valuable company in Europe with strong fundamental attributes. In last 3 years we've seen Unilever rise by 36% while The FTSE 100 increased by 5%. This is to do with the fact that their products are a necessity which help the company sustain fluctuations of Market uncertainty. Necessities as the word implies, are a necessity, they don't wait for Brexit to happen or for trade wars to be over. Naturally household staples will always be in demand and Unilever owns more than 400 brands. The company has stated that it will halve its use of plastic by 2025 by switching to reusable plastics. This is a great step for the company to contribute to an ethical sustainable approach and will cut its use of plastics from 700,000 to 100,000. Moving on to some more numbers: • The third-quarter sales increased by 2.9% and the turnover reached $14.7 billion as compared to $13.78 billion for the same period in the previous year. • The beauty segment increased by 7%, home-care by 7.7% and food and refreshment by 3.5% during the quarter. • The operating profit of the company has consistently grown since 2015. • The earnings per share (EPS) growth was 62% in 2018 and the current EPS is 3.06. • Emerging markets sales growth was 5.1% and the turnover increased by 5.8%. • Unilever has a forward price-to-earnings (P/E) ratio of 21.27 and a 3.04% dividend yield. • The company had a dividend yield of 6.19% in 2018. • The industry P/E ratio is 22.64, which shows that the company is better than most of its competitors in the industry. • The company has ample net income to cover the dividend pay-out and has been consistently increasing the dividend over the last decade, keeping investors happy. • The free cash flow yield for the company in 2018 stood at 1.30%. The board declared a quarterly dividend of 35.76p, which is 6% ahead of the previous year. • The company has consistently paid dividends since 2010. With constant earnings and revenue no matter the economic conditions, the company should be able to continue rewarding shareholders Basic everyday consumables will always be in demand which will naturally benefit Unilever. The company expects to continue underlying sales growth in the range of 3-5% and expects an improvement in the operating margin that will help generate adequate free cash flow for 2020. As with all stocks we have to appreciate there are risks associated with investing such as market sentiment, internal issues that may arise in a company and political issues effecting share prices. The price of Unilever has increased which has significantly reduced the dividend yield making it less attractive for investors. The PE ratio has also increased which some investors might take as an over-valuation. However, on balance this does appear to be a company with strong potential for the future, provides regular dividend pay-outs and looks to see strong growth in the coming years.
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