Unilever (LSE: ULVR) shares have an impressive dividend track record that spans the best part of a century. The consumer goods business currently yields a healthy 3.55%.
Like many investors, one goal I’m currently working towards is boosting my passive income streams. Buying dividend stocks like Unilever is a great way to achieve this aim.
Here’s how I’d approach investing in the FTSE 100 company to target a four-figure second income with minimal effort over the next five years.
A dividend heavyweight
As I write, Unilever shares trade for £40.99 each. That’s a 5.5% increase over the past 12 months — slightly higher than the 4.5% gain delivered by the FTSE 100 index over the same timeframe.
If I had enough spare cash to buy 138 shares at today’s price, that would cost me £5,656.62 in total. At the current dividend yield, my shareholding would produce £200.81 in passive income each year.
There’s a risk companies — including Unilever — can slash or suspend dividend payments. But its stable business model and defensive credentials mean its dividend is more secure than most, in my view. Indeed, brokers forecast the company will raise its shareholder distributions this year, albeit modestly.
Assuming the dividend didn’t change and I didn’t reinvest my payouts into more shares, I’d earn a little over £1,004 in passive income simply by holding my initial investment in the stock for five years.
The outlook for the share price
So, that’s the dividend numbers crunched. But, what about the firm’s share price growth prospects?
I think there are reasons to be bullish here too.
First, the company is undertaking a €3bn share buyback programme, which should continue to add value for shareholders. The business is halfway through this, having completed the first two tranches for a total of €1.5bn last year. It expects to conclude the programme by the end of 2023.
Second, an impressive brand portfolio gives Unilever strong pricing power, which is useful while inflation remains high. Representing over 51% of the group’s turnover, the company owns 12 brands that are valued at €1bn+. Familiar names include Dove, Hellmann’s, and Magnum.
Third, I like the company’s diverse product mix. Unilever now categorises its consumer offering into five main divisions, namely:
- Beauty & Wellbeing
- Personal Care
- Home Care
- Nutrition
- Ice Cream
The business delivered growth in each area in Q3 2022. What’s more, with 3.4bn consumers spread over 190 countries, it’s a highly geographically diversified enterprise too.
Admittedly, the company faces risks from intensifying competition. Swiss multinational Nestlé has outpaced the business in terms of volume and product mix growth since 2003 with a 3% annualised increase compared to Unilever’s 1.8%.
The gap between the two has widened since 2020. I’m watching closely to see if Unilever has a credible plan to keep up with its rivals.
My passive income portfolio
Overall, despite some risks, I think the shares could make a good addition to my diversified passive income portfolio.
With new CEO Hein Schumacher due to take over in July, it’ll be interesting to see any signals of a new strategic vision for growth in the company’s full-year results tomorrow. I’ll closely monitor the share price for any dips I can buy into this year.
