Top dividend shares: is Unilever worth buying over Molten Ventures?

In this article, the author looks at both sides of the dividend debate by exploring whether top dividend shares are preferable to retained earnings.

| 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.

Many top FTSE 350 shares pay dividends to shareholders year in, year out. Indeed, it can be a great way to create additional income and I have found this a useful strategy in recent years. Unilever (LSE: ULVR) is one of the top dividend shares that has paid consistent dividends to shareholders. A leader in the fast-moving consumer goods (FMCG) market, Unilever has an average dividend yield of 3.04% over the past five years, although this has declined slightly since 2019.

If I had £10,000 to invest, what amount of dividend payments would I have received from 2016 to 2020 from Unilever shares? In total, I would have received £1,520 in dividends over those five years – equivalent to 15.2% of the original holding itself. This, together with any growth in the share price, tells me that this is a low-risk investment. Personally, I would not be directing £10,000 to Unilever shares, because I think I can get better returns elsewhere. With a much larger sum of money, however, this dividend yield becomes a more attractive option. If I were considering a £100,000 investment, for example, Unilever may be one of the better destinations. 

If this level of dividend yield is not attractive for me, where else could I put my £10,000? Instead of focusing on income, I could find a smaller-scale accumulation stock with big potential. Molten Ventures (LSE: GROW) is a FTSE 250 stock that gives investors exposure to private tech companies. This company does not pay a dividend and instead retains its earnings. These retained earnings may be found in company annual reports and Molten Ventures figures show impressive growth over the last five years – about 77.2% year-on-year. Together with other fundamental factors, retained earnings may give clues about how well an accumulation stock is actually growing. Essentially the main question to consider is whether a stock like Molten Ventures is putting the earnings to good use or is it preferable to have this money paid out of the stock to shareholders.

If I decided to choose an accumulation stock, I would first need to ask myself a number of questions. Am I confident in the company’s leadership? Is the leadership following through on promises? Is the company growing? In Molten Ventures’ case, only two years ago the then-AIM 100 listed company publicly stated its desire to enter the FTSE 250, which was achieved this year. Furthermore, a number of private companies funded by Molten Ventures have gone public, including Cazoo, Trustpilot and UiPath. For me, both these factors are strong indications that Molten Ventures is deploying retained earnings effectively and I think my £10,000 would be better invested in this stock rather than in Unilever for its dividends. My decision might be different if the amount available to invest was much greater, when I might deem the dividend yield to be significant.   

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.

Andrew Woods 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

Investing Articles

Here’s how I’d follow Warren Buffett to start building passive income in 2025

Ben McPoland highlights one FTSE 250 firm with a strong competitive edge that he thinks can continue rewarding investors with…

Read more »

Investing Articles

Burberry shares: undervalued FTSE gems that are ready to rocket?

Burberry shares soared at the beginning of the week as the takeover rumour mill went into overdrive. Is Paul Summers…

Read more »

US Stock

Here are the latest share price forecasts for S&P 500 giant Amazon

Amazon has generated monster gains for investors over the last decade. And Wall Street analysts believe the S&P 500 stock…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

2 high-yield FTSE 250 shares I’d buy today — and 1 that I’d avoid

UK markets have felt some volatility after last week’s Budget and the FTSE 250 was no stranger to it. Our…

Read more »

Investing Articles

3 reasons the Rolls-Royce share price could soar over the next decade

Sustainable aviation fuel, narrow-body aircraft, and small nuclear reactors could all keep the Rolls-Royce share price climbing over the next…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

Here’s how much income I’d get if I invested my entire £20k ISA in cheap BT shares

BT shares are on the up but still cheap, while the FTSE 100 telecoms stock offers a good yield too.…

Read more »

Investing Articles

2 FTSE dividend shares yielding more than 6% with P/Es of less than 9!

Harvey Jones picks out two brilliant FTSE 100 dividend shares that yield more than 6% but are selling at strangely…

Read more »

Investing Articles

Up 105% in a year! Is this rocketing FTSE bank the perfect pick for my Stocks and Shares ISA?

Harvey Jones is drawing up a shortlist of stocks to purchase inside his Stocks and Shares ISA allowance. This FTSE…

Read more »