Image source: Unilever plc
Could Unilever (LSE: ULVR) Are stocks among the best for creating long-term wealth?
If the stock market trauma of the last few years has taught me anything, it's that I need to own more defensive stocks.
It's a bit like Warren Buffett's first rule of investing: never lose money.
What stock market crash?
Just look at the way Unilever's share price didn't crash in the stock market panic of 2020.
How many, before 2020, were buying stocks that they thought had the most chance of going up instead of the least chance of going down?
I have my hand up there. I worked primarily in financial and home construction stocks.
In a crisis, people may stop borrowing money to buy new homes. But they can't give up food.
Progressive dividend
Unilever's dividend is not the largest. But the expected returns of around 4% are not bad at all. And there is a long history of increases.
Over the last decade, I see consistent quarterly payments, with a nice upward trend. And since Unilver's restructuring in 2020, euro payments have not faltered.
This is due to skyrocketing inflation and interest rates, global unrest, and rising oil prices.
Exciting? No. Reliable and secure? I would say yes.
Compound returns
Suppose Unilever shares go nowhere in the next 20 years, but the dividend stays at 4%.
Investing £100 a month in Unilever shares over that period could net you £36,500. And if the dividend grows in cash terms, you'd expect some gains in the share price as well.
In fact, in the last 20 years, Unilever shares have risen 230%, while the FTSE 100 he achieved only 69%.
I can't say the same thing will happen again. But I'd say the odds of Unilever's business model doing well over the next two decades are better than even.
Cheap now?
However, at the moment I think inflation has turned some consumers away from Unilever's well-known brands. And I hope the cheaper offers from the likes of Lidl and Aldi clear out.
One result is a 5% drop in share price over the past five years.
It leaves the stock with a projected price-to-earnings (P/E) ratio of around 18, which will fall to 16 by 2025.
It may not look cheap, but it's modest compared to Unilever's long-term valuation. Over the decades, investors have valued stocks because of their reliability.
Two reasons
I have two reasons to consider the purchase. One is the dividend. The other is that I think Unilever shares could start to rise again when inflation cools.
Or, at least, when cooling inflation leads to lower interest rates and helps buyers' pockets again.
The main risk I see is that this could take a while to happen. Inflation has fallen. But with pay increases on the rise, I suspect we haven't seen the end result yet.
Purchase opportunity
Therefore, Unilver's share price is likely to be weak for some time. Still, that could keep the stock cheap long enough for you to finally buy some.
