Many top FTSE 100 companies are currently offering dividends that knock spots off the interest you can get from cash or bonds.
In this festive series of articles, I’m assessing how the companies measure up as income-generators, by looking at dividends past, dividends present and dividends yet to come.
Today, it’s the turn of consumer goods giant Unilever (LSE: ULVR) (NYSE: UL.US).
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Dividends past
The table below shows Unilever’s three-year earnings and dividend record.
| 2010 | 2011 | 2012 | |
|---|---|---|---|
| Statutory earnings per share (EPS) | €1.51 | €1.51 | €1.58 |
| Dividend per share | €0.832 | €0.900 | €0.972 |
| Dividend growth | — | 8.2% | 8.0% |
Unilever began paying four equal quarterly dividends during 2010, with 2009 being a transition year from the previous policy of paying a half-year and final dividend. The two-year dividend growth from 2008 to 2010 was 8.1%.
A total of €2.704 a share paid in dividends over the last three years was covered 1.7 times by total statutory EPS of €4.60. For the latest year (2012), EPS cover was 1.6.
A solid dividend performance through difficult economic times, although the company has been increasing dividends faster than earnings.
Dividends present
Unilever has so far declared three quarterly dividends of 0.269 for 2013. A further €0.269 for the fourth quarter when the company announces its annual results on 23 January, would give a full-year payout of €1.076 (up 10.7% on 2012).
For EPS, analysts have revised down their forecasts for the year to zero growth on 2012 after Unilever reported “weakening in the market growth of many emerging countries” during the third quarter. As a result, dividend cover would fall to 1.5.
At a share price of 2,465p, Unilever’s current-year dividend (equating to around 91p sterling) represents a yield of 3.7%.
Dividends yet to come
Some analysts believe Unilever will pay a lower Q4 dividend for the current year, while analysts across the board are expecting dividend and EPS growth to be only modestly ahead of inflation for 2014. Dividend forecasts are in the region of €1.12, with EPS of €1.63, maintaining dividend cover at 1.5.
It would be a concern to see Unilever’s dividend cover falling below 1.5, and the company’s habit of increasing dividends ahead of EPS in recent years appears ripe to be reined in — as the analysts are forecasting.
Shareholders shouldn’t expect to see the high dividend growth of the recent past continuing in the near term. In the longer term, Unilever’s exposure to emerging markets should enable the company to produce above-average earnings growth and dividend increases comfortably ahead of inflation.
