While gold has enjoyed a strong performance in recent months, over the long term, the asset has produced disappointing returns. Indeed, over the past three decades, the yellow metal has returned around 2.3% per annum, excluding costs and charges.
As such, equities could be a better investment over the long run. Some FTSE 100 dividend stocks, in particular, stand out as having much better long term prospects than the precious metal.
Global diversification
Unilever (LSE: ULVR) is one of the world’s largest consumer goods businesses. This makes the company very attractive from an investment perspective. Not only is it internationally diversified, but the demand for consumer goods is only likely to grow over the long term.
What’s more, consumers don’t stop buying washing powder or ice cream in an economic downturn. Therefore, the company is well placed to generate returns for investors through all market cycles.
Certainly, Unilever generated a strong return for investors in the last financial crisis. Between 2007 and 2010, Unilever’s revenues increased by around 10%. At the same time, many other companies around the world were struggling, particularly in the financial sector.
Solid revenue growth also helped the company’s share price outperform during this tough time. The stock added around 20%, excluding dividends, between 2007 and 2010.
Of course, there’s no guarantee the firm will be able to do the same in the next downturn. However, Unilever’s presence in the global consumer goods market implies it should be able to weather the storm.
Earnings growth
Over the past six years, the company’s net profit has grown at a compound annual rate of 14%. A combination of volume growth and price increases have helped the firm achieve this performance.
Steady earnings growth has also helped the organisation achieve a reputation as a dividend champion. Over the past six years, the company’s dividend to investors has grown at a compound annual rate of 8%.
Even though Unilever might not currently support the best dividend yield in the FTSE 100, this suggests it’s still an excellent dividend growth investment. The stock currently supports a dividend yield of 3.3%, compared to the market average of 4.3%.
Still, the distribution is covered 1.5 times by earnings per share, which suggests there’s plenty of room for management to increase the dividend in the years ahead.
A better performance
All of the above seems to suggest Unilever could produce a more robust performance than the gold price over the next few decades. As such, the stock could be a more reliable investment than the yellow metal, despite its recent accomplishments.
A forward price-to-earnings (P/E) ratio of 20 might look expensive compared to the rest of the market. Nevertheless, Unilever has always commanded a high valuation and, right now, the stock is at the lower end of its long-run valuation range.
Therefore, it would appear the consumer goods giant is undervalued and could offer a wide margin of safety at current levels.
