At a 52-week low, I think the Unilever share price might be too cheap to ignore

Stephen Wright thinks Unilever shares could be a great passive income investment. And a 4% dividend yield with room to grow is catching his eye right now.

| 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.

Lady taking a carton of Ben & Jerry's ice cream from a supermarket's freezer

Image source: Unilever plc

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.

The Unilever (LSE:ULVR) share price has fallen by 10% since the start of the year, putting it at a 52-week low. Right now, the stock is trading close to its February 2017 levels.

Created with Highcharts 11.4.3Unilever PriceZoom1M3M6MYTD1Y5Y10YALL21 Nov 201821 Nov 2023Zoom ▾Jan '19Jul '19Jan '20Jul '20Jan '21Jul '21Jan '22Jul '22Jan '23Jul '232019201920202020202120212022202220232023www.fool.co.uk

The main reason for the decline is inflation, but this has been falling in the UK, Europe, and the US recently. But while the market is still discounting Unilever shares, I think now is the time to consider buying.

Passive income

First things first – I don’t see Unilever as a stock that’s going to make investors rich. The company’s earnings per share growth over the last decade has averaged around 6.5% per year – roughly in line with the FTSE 100.

Should you invest £1,000 in ITV 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 ITV made the list?

See the 6 stocks

The business isn’t known for explosive growth and I don’t think anyone should expect that going forward. But it’s known for a steadily growing dividend, which looks attractive to me after the latest share price declines.

Right now, the stock has a dividend yield of close to 4%. And with management targeting sales growth of between 3% and 5% a year along with expanding margins, I think there could be good returns at today’s prices.

If the firm achieves its most pessimistic growth estimates, the average annual yield will be 4.5% over 10 years and 5.2% after 20 years. With bonds offering 4.2% and 4.6%, respectively, the stock looks much more promising.

Inflation

Rising costs have been forcing the company to raise its prices. The trouble is that – even with brands as strong as Unilever’s – there are limits to how far this can go before customers start switching to cheaper alternatives.

The latest trading update bore this out – revenues grew by 5.2%, as a 5.8% increase in price caused a 0.6% decline in volumes when consumers opted for cheaper alternatives in the cost of living crisis. The stock fell 3% as a result.

But I think it’s important to remember that inflationary pressure seems to be easing. In the UK, Europe and the US, central banks are making progress towards bringing the rate of inflation under control. 

If this can continue, then the major headwind Unilever has been facing might soon be about to subside. And if that happens, a price-to-earnings (P/E) ratio of 13 looks to me like a good opportunity to buy the stock.

A buying opportunity?

There’s a risk that the drop in inflation might be temporary. With the conflict between Russia and Ukraine ongoing and relations between China and the US tense, it’s not like there’s a shortage of inflationary factors.

In my view, the potential reward is worth the risk. By buying the stock at a 52-week low, investors have a chance to buy shares in a business with a strong record of dividend growth and get a 4.9% yield straight away.

On top of that, I think  the new CEO’s strategy to boost growth is a good one. The plan is to  invest in the firm’s existing brands, rather than attempting to generate growth through acquisitions.

This reduces the risk of overpaying for a business, as the company arguably attempted to do with Haleon. But with  a new strategy, I’m  looking at this as an opportunity to buy more Unilever shares for my portfolio.

5 Shares for the Future of Energy

Investors who don’t own energy shares need to see this now.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — sees 2 key reasons why energy is set to soar.

While sanctions slam Russian supplies, nations are also racing to achieve net zero emissions, he says. Mark believes 5 companies in particular are poised for spectacular profits.

Open this new report5 Shares for the Future of Energy — and discover:

  • Britain’s Energy Fort Knox, now controlling 30% of UK energy storage
  • How to potentially get paid by the weather
  • Electric Vehicles’ secret backdoor opportunity
  • One dead simple stock for the new nuclear boom

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

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.

Stephen Wright has positions in Unilever Plc. The Motley Fool UK has recommended Haleon Plc and Unilever Plc. 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

Tesla building with tesla logo and two teslas in front
Investing Articles

Tesla stock is down. But it may be far from out!

Tesla stock has crashed this year but its long-term record of value creation is outstanding. So, could this be a…

Read more »

A young woman sitting on a couch looking at a book in a quiet library space.
Investing Articles

£3k in savings? That’s plenty to start buying shares and earning passive income!

Christopher Ruane explores how a stock market newcomer could start buying shares with a few thousand pounds and an appetite…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

5 passive income techniques of stock market millionaires

Christopher Ruane details a handful of approaches many successful stock market investors use to grow their passive income streams.

Read more »

Aston Martin DBX - rear pic of trunk
Investing Articles

Down 42% in a year, here’s why Aston Martin shares could keep falling

Aston Martin shares have destroyed vast amounts of shareholder value since the company listed in 2018. Are they now a…

Read more »

One English pound placed on a graph to represent an economic down turn
Investing Articles

FTSE shares: a once in a blue moon chance to get rich?

Christopher Ruane explains why he thinks hunting for blue-chip FTSE bargains in the current market could help an investor build…

Read more »

Businessman hand stacking money coins with virtual percentage icons
Investing Articles

4 stocks Fools have bought for growth and dividends

Sometimes, an investor doesn’t have to make the choice between buying a growth stock or dividend shares! Some investments offer…

Read more »

Rolls-Royce's Pearl 10X engine series
Investing Articles

Is there no limit to how high Rolls-Royce shares might go?

Christopher Ruane sees some reasons Rolls-Royce shares could continue pushing upwards. But is he persuaded enough about the potential value…

Read more »

Businessman hand flipping wooden block cube from 2024 to 2025 on coins
Investing Articles

How much could £20k in a Stocks and Shares ISA be worth in 2030?

UK investors have enjoyed spectacular returns in their Stocks and Shares ISA's over the past five years. Would could the…

Read more »