Here’s what I think is next for Unilever’s dividend

Given the expected global economic rebound next year, Jay Yao writes what he thinks Unilever management will do with the dividend in the coming years.

| 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.

Unilever (LSE:ULVR) is a leading consumer products company with numerous competitive advantages. Given its immense scale, the company has financial resources that few competitors can match. And as an indication of its strength, Unilever has held up fairly well in 2020, despite the pandemic. 

According to analyst estimates, ULVR’s underlying earnings per share (EPS) should decline just 2.1% for full-year 2020. 

So given the expected economic rebound next year, what’s ahead for the dividend? Here’s what I think. 

Should you invest £1,000 in Plus500 Ltd. 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 Plus500 Ltd. made the list?

See the 6 stocks

Unilever dividend: what might happen next year

Currently, Unilever pays a trailing 12-month annual normal dividend per share of around 145p. That’s a 3.3% dividend yield at current prices. And it has good dividend coverage as analysts expect the company to earn €2.49 (229p) in underlying earnings per share for 2020.  

So in 2021, I think the company will very likely increase the dividend given the flexibility in the payout ratio that it has and the fact that analysts on average expect the company’s underlying EPS to rise by 3.4% in euro terms. 

Attractive qualities as a dividend-payer

Looking past 2021, I think ULVR’s dividend per share will continue to increase modestly — as long as the company continues to perform, of course. 

Overall, the business has a number of attractive qualities as a dividend-payer. First, demand for ULVR’s products does not decline as much as the demand for products of some other companies during tough times. Unilever products are relatively cheap, but they are also brands that enjoy strong loyalty. Consumers continue to buy them, even during a recession. 

Second, ULVR has a history of dividend growth with the company having consecutively raised its annual payout for over three decades. That history is a clear sign that management priotises dividends for shareholders. 

Perhaps most importantly, management has also executed pretty well. Over the past five years, the Unilever stock price has increased by almost 50%. Adjusted earnings per share have increased by 47% from 2015 to 2019.  

M&A in the future?

One action I think Unilever management might take in the future is accelerating its M&A strategy. 

Recently, the group unified its complex legal structure under a single parent company so that its legal base is in London. Many believe Unilever did so to make M&A easier.

Chairman Nils Andersen recently confirmed as much, saying that the unification would “give us greater flexibility for strategic portfolio change“.

If management does the right deals, I think there is potential for the company’s earnings per share to rise faster than expected. If that happens, the dividend could grow faster than the market expects too. 

Such deals can always go wrong, of course, but the company has executed very well in this area so far. And there is nothing to suggest it will not do so in the future.

So I would buy and hold ULVR in the belief that the company will continue to modestly increase its dividend per share. If I hold for long enough, those modest rises will add up to a big bonus in the years ahead. 

Should you invest £1,000 in Plus500 Ltd. 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 Plus500 Ltd. made the list?

See the 6 stocks

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.

Jay Yao has no position in any of the shares mentioned. The Motley Fool UK has recommended Unilever. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Middle-aged white man pulling an aggrieved face while looking at a screen
Investing Articles

What the devil’s going on with the HSBC share price?

The HSBC share price has actually been less volatile than some of its peers, despite its Chinese operations suggesting it’s…

Read more »

Young Black woman looking concerned while in front of her laptop
Investing Articles

Are Tesco shares a screaming buy after sinking to 9-month lows?

Tesco shares continue to experience price weakness as signs of mounting competition grow. But is it now too cheap to…

Read more »

Investing Articles

Down 31%! 1 top growth stock to consider at $10 for a Stocks and Shares ISA

This high-quality stock has pulled back sharply since November, making it a possible candidate for a growth-oriented Stocks and Shares…

Read more »

Long-term vs short-term investing concept on a staircase
Investing Articles

Down 28% in 8 months, is AstraZeneca’s share price too cheap for me to pass up right now?

AstraZeneca’s share price has fallen a long way from its September high, but this may mean an opportunity for me…

Read more »

Investing Articles

Is April a great time to start investing?

Our writer spotlights a top-tier tech stock that has sold off recently, making it worthy of consideration for someone ready…

Read more »

Investing Articles

1 beaten down dividend stock investors could consider for passive income

Our writer Ken Hall takes a look at one under-pressure mining giant that should be on investors' radars as a…

Read more »

Affectionate Asian senior mother and daughter using smartphone together at home, smiling joyfully
Investing Articles

3 FTSE 100 investment trusts to consider for a new ISA in 2025

It's a new tax year and time to dust off that old ISA. Here are three FTSE 100 investment trusts…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

Is there still time to pick up Nvidia stock cheaply?

The Nvidia stock price has just had a scary week. But here's why I expect that should have very little…

Read more »