Why Reckitt Benckiser Group Plc Beats Unilever Plc And Associated British Foods Plc

Reckitt Benckister Group plc (LON:RB) triumphs over Unilever plc (LON:ULVR) and Associated British Foods plc (LON:ABF) in the consumer sector battle.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Last time I took a look at one of the FTSE 1oo sectors, I examined the oil & gas business, and I found it impossible to choose between Royal Dutch Shell and BP.

Today I’m turning to something a little different, and I’m comparing three companies that are technically in two different sectors. They are Unilever (LSE: ULVR) (NYSE: UL.US), Reckitt Benckiser Group (LSE: RB) (NASDAQOTH: RBGLY.US) and Associated British Foods (LSE: ABF), and the reason I’m pitting them against each other is that all three essentially produce consumer goods — and I think they make a good barometer for consumer demand.

 Here’s an overview of some fundamentals:

Should you invest £1,000 in Lloyds Banking Group right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Lloyds Banking Group made the list?

See the 6 stocks

Company Unilever Reckitt Benckiser Associated British Foods
Market cap £34.3bn £32.6bn £15.3bn
Recent price 2,620p 4,570p 1,933p
Share price growth 16% 28% 50%
Historic EPS growth 10% 7% 18%
Forward EPS growth -2% 0% 11%
Historic P/E 17.2 14.5 14.6
Forward P/E 19.2 17.0 20.0
Historic Dividend 3.5% 3.5% 2.2%
Forward Dividend 3.4% 3.0% 1.6%
Forward Cover 1.5x 1.9x 3.1x

Share price growth is over the past 12 months, historic figures are for the last reported full year, forward figures are for the next forecasts.

First impressions

I’ve been watching all three companies for some time, as I have Unilever in the Fool’s Beginners’ Portfolio watchlist, and they’ve all been looking a bit pricey to me. They’re reasonably defensive shares, so I’m not surprised they’ve been holding their own during the past few years — but they’ve all been soaring since late 2012. But let’s take a look at each:

Unilever

I’ve always liked Unilever as long term investment, and with the exception of a cut in 2009, it has been steadily raising its dividend. Even the 2009 dip was quickly overcome, with the next year’s payment rising to exceed 2008’s. The yield is not great, but at around 3.5% it isn’t bad either. Forecasts are somewhat middling for this year and next, with little real change in overall earnings per share (EPS) expected, but the dividend is expected to carry on creeping up and it should be adequately covered.

But that share price! Granted, it peaked at 2,885p back in May (which gave us a forward P/E of 21) and has fallen 9% since then to 2,620p. But I can’t help thinking we’re in a price-correction phase right now and the share price is likely to disappoint over the next year or two.

Reckitt Benckiser

With hindsight, Reckitt Benckiser would have been a great buy a year ago, but even after a strong share price rise, I think the company edges ahead of Unilever in a number of ways. Firstly, even the crunch year of 2009 didn’t affect its dividend, and we’ve been seeing uninterrupted rises — last year we had a yield of 3.5%. Earnings growth has been steady too, though forecasts do suggest flat EPS this year and a modest 3% rise for 2014. Dividend growth also looks set to slow a bit this year, with a 3% yield predicted.

But, Reckitt Benckiser also scores in that its dividend is significantly better covered that Unilever’s, and the company could afford to pay a similar 3.4% forward yield to Unilever’s while still keep cover above 1.7x. The slightly lower P/E multiple tempts me more too.

Associated British Foods

This brings me to perhaps the must unusual of the three, Associated British Foods, which mostly focuses on grocery, agriculture, sugar and such foodie things. But it also owns retail clothing chain Primark, and it’s Primark that has been driving its recent upbeat trading.

Associated British Foods has been exhibiting growing earnings and dividends just like the other two, and it has the strongest EPS forecasts of the three here — 11% this year, 9% next. But against that, we do have the highest forward P/E by a whisker. And though the dividend is rising and is the best covered of the three, it looks set to provide a yield of only 1.6% — doubling that to the FTSE average of around 3.2 would bring the cover down to Unilever’s 1.5x.

The winner

I have to confess I’d have difficulty plonking down my cash for any of these three at today’s prices, even though I think they’re all great long-term businesses. But if I had to choose one, I’d plump for Reckitt Benckiser, on what I think are slightly better fundamentals — and it also has lower debt than Unilever, though neither carries too much.

Finally, if you’re looking for investments that should take you all the way to a comfortable retirement, I recommend the Fool’s special new report detailing five blue-chip shares. They’ll be familiar names to many, and they’ve already provided investors with decades of profits.

But the report will only be available for a limited period, so click here to get your hands on these great ideas — they could set you on the road to long-term riches.

> Alan does not own any shares mentioned in this article. The Motley Fool has recommended shares in Unilever.

But there may be an even bigger investment opportunity that’s caught my eye:

Investing in AI: 3 Stocks with Huge Potential!

🤖 Are you fascinated by the potential of AI? 🤖

Imagine investing in cutting-edge technology just once, then watching as it evolves and grows, transforming industries and potentially even yielding substantial returns.

If the idea of being part of the AI revolution excites you, along with the prospect of significant potential gains on your initial investment…

Then you won't want to miss this special report inside Motley Fool Share Advisor – 'AI Front Runners: 3 Surprising Stocks Riding The AI Wave’!

And today, we're giving you exclusive access to ONE of these top AI stock picks, absolutely free!

Get your free AI stock pick

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Our best passive income stock ideas

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

More on Investing Articles

Investing Articles

6.8% dividend yield! Consider these 2 ‘secret’ passive income stocks to target a £1,360 payday in 2025

Looking for ways to generate above-average dividend income? These lesser-bought income stocks are worth a close look.

Read more »

Elevated view over city of London skyline
Investing Articles

The M&G dividend yields over 10% — and could get higher!

Christopher Ruane explains why he's upbeat about the long-term outlook for the M&G dividend yield and would happily buy the…

Read more »

Young Caucasian man making doubtful face at camera
Investing Articles

2 popular UK growth stocks I wouldn’t touch with a bargepole in today’s market

Buying growth stocks can deliver market-beating returns, but this FTSE 250 pair doesn't look like a convincing investment for our…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing Articles

10 FTSE shares falling today after President Trump’s tariffs bombshell!

Our writer explains why JD Sports Fashion from the FTSE 100 and a diverse bunch of other UK stocks are…

Read more »

Fans of Warren Buffett taking his photo
Investing Articles

With value investing back in vogue, I’m taking a leaf out of Warren Buffett’s playbook

With tariffs and trade wars resulting in heightened market volatility, Andrew Mackie takes comfort in Warren Buffett’s words of wisdom.

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

Around a 1-year high, is there enough value left in Next’s share price to make it worth me buying?

Next’s share price has risen a lot in eight months, but there could still be a lot of value left…

Read more »

Group of young friends toasting each other with beers in a pub
Investing Articles

OMG DYOR but IMO this ‘cool’ FTSE 100 stock offers bangin’ VFM!

Despite being one of the least trendy 50-somethings around, our writer considers how Gen Z could help push this FTSE…

Read more »

Investing Articles

2 cheap FTSE 100 and FTSE 250 growth stocks to consider as stock markets sink

I think these Footsie and FTSE 250 growth shares could be very shrewd buys to consider in the current climate.…

Read more »