I noticed that Unilever (LSE: ULVR) shares recently hit 52-week lows! I’ve been considering buying some purely for the passive income opportunity and I reckon now’s the time for me to snap up some shares. Here’s why!
Volatility presents an opportunity
Despite Unilever’s impressive range of products, strong brand power, and mammoth reach, it hasn’t been able to avoid macroeconomic volatility. This includes soaring inflation, rising costs, and higher interest rates. I reckon this is what has caused the shares to slide. However, I’m not worried and instead view the dip as a buying opportunity.
As I write, Unilever shares are trading for 3,807p. At this time last year, they were trading for 4,179p, which is an 8% drop over a 12-month period. However, since volatility began to hurt markets, they’ve slipped 14% from 4,443p in May to current levels.
My investment case
From a bearish perspective, Unilever has had to navigate higher costs and therefore increase its prices. This has impacted performance and sales volumes of certain products in specific segments have struggled. This is one of the biggest issues hurting its shares. At present, there’s no clear indication as to how long macroeconomic volatility will last so this could be an issue that I’ll need to keep an eye on.
Another risk of note is that of growth plans being hindered. This is key as I’m looking to boost my holdings with quality dividend stocks like Unilever. Dividends tend to grow in line with the business. It seems the consumer goods giant is currently looking to invest in current products for growth rather than further diversification or new additions. I reckon this could be wise given the state of the economic outlook.
Turning to the bull case then, I’m instantly drawn to Unilever’s valuation. A price-to-earnings ratio of 13 makes the shares look very attractive to me.
From a returns perspective, Unilever shares possess a dividend yield of 4% at present. However, continued volatility and less-than-stellar performance could hurt this but at present the returns look well covered by earnings.
Speaking of earnings, management at Unilever is expecting 3%-5% annual sales growth, which could boost performance and passive income. Although forecasts don’t always come to fruition, if this were to happen I can see the shares heading upwards once more.
Finally, as well as its wide profile and presence, I reckon Unilever possesses an element of defensive ability. This is because many of its products are household and consumer staples. These include food, cleaning products, and personal hygiene goods. This ability can help the bottom line no matter the economic outlook.
What I’m doing now
I reckon the chance to snap up one of the biggest consumer goods businesses in the world at such an enticing valuation may not come around so often. On that basis, I’ll be looking to add some shares to my holdings the next time I have some spare cash to invest.
Although there’s no telling when volatility could dissipate, I believe the shares will begin heading upwards upon greener pastures. I don’t want to be in a position where I regret not acting now!
