Investing in Unilever Stock (ULVR) – Should You Buy?

Unilever is one of the biggest companies in the world and yet many people have no idea who they are or what they do. But we guarantee that almost everyone has purchased their products.

Does their global reach and huge product range make Unilever stock an essential part of every investor’s portfolio? Offering an amazing dividend that keeps getting bigger and a strong balance sheet, surely this is the stock of dreams?

So, who are Unilever? How do their fundamentals look? What does Unilever’s future look like? And is it worth investing in?

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Who are Unilever?

Unilever are one of the companies we featured in our very popular Youtube video ‘Best Dividend Stocks UK’.

The company is a colossus with a market cap of whopping £127b, which is up from £109b in that previous video, so that’s some nice growth in such a short time.

Next time you’re in a supermarket or even just look in your cupboards and check out the manufacturer of those products. We bet a large majority of these are owned by just a small number of companies – Unilever being one of them.

In fact, according to Unilever, “Seven out of every ten households around the world contain at least one Unilever product.” They also own over 400 brands with 13 of these having sales of over one billion euros.

We love this company because brands, and lots of them, create a protective moat, which make it very difficult for competitors to enter the market. A protective moat is a key thing legendary investor Warren Buffet looks for when investing. Consumers tend to have loyalty with their favourite brands and keep coming back.

Not only does this give Unilever a more predictable income stream but it allows them to charge more than competitors – often a lot more. Take Domestos, Supermarkets tend to charge about £1 for a bottle but the non-branded supermarket version is around 45p – For essentially the same product. This is a whole lot of extra margin for Unilever.

Domestos - A Unilever Brand

Unilever’s Geographic Reach

They are also hugely diversified in terms of geographical reach with exposure to markets all around the world with particular exposure to emerging economies. It is these countries where large growth is expected to come from.

In fact, almost half their revenue comes from this area. Strong brands across many geographical markets make it less risky for investors…perhaps.

Remember as an investor you’re looking to stack the odds in your favour.

Dividend and Yield

The dividend yield is certainly not the highest in the FTSE 100 but it’s still decent at 2.80% with a healthy dividend cover of 1.52.

A rising dividend with healthy cover is exactly what you want to look for when constructing a dividend portfolio. Unilever even pay out the dividend on a consistent quarterly basis, which is great for your cashflow.

Bear in mind that Unilever now decides dividends in euros, so while the dividend is consistently rising in euro terms, UK investors will see a level of volatility due to currency exchange rates.

Unilever Dividend History Chart
Source: dividenddata.co.uk

Share Price

Just look at that share price growth on top of any dividend payouts. Whilst a chart like this is historical and not necessarily an indicator of the future, it goes to show that performance has been good.

Whilst your investment style will dictate whether this is good or bad, we tend to like this consistent growth. Stocks that show sharp drops may look like opportunities, but it is far too common to get stung again as further drops often occur. I should know as I’ve been stung a few times myself.

Unilever Chart
Unilever Share Price History

Earnings

We find the best place to go for information on earnings for any stock is the companies accounts. Investment Websites are good but can sometimes have errors. Unfortunately, annual accounts are long, complicated and extremely boring.

Revenue has hovered around the €50b mark for past 3 years but despite this they have managed to grow Net Profit and EPS. Bear in mind that we see a huge surge in non-underlying items. By following the notes, you can find that this relates to the disposal of its Spreads business. These sorts of gains are one-offs and should be treated as such when analysing stocks.

Whilst a full analysis of earnings goes beyond the scope of this article, we are happy with the company’s earnings.

Price Earnings Ratio

According the Hargreaves Lansdown the P/E ratio is 19.80, which is based on the adjusted EPS – This is excluding non-recurring items, which we assume to be things like the disposal of the spreads business just mentioned.

This is high when compared to the FTSE 100 PE of about 15 but we think that Unilever has better growth prospects and certainly more protection against a price drop.

Risks

Unilever relies on the power of its brands. They need to ensure that their brands stay relevant.

Changing consumer demands and even new taxes such as sugar tax can have a huge detrimental impact on Unilever’s business. Then there is the problem with plastic packaging. Unilever needs to find a way to reduce its use of plastic.

Customers are becoming more concerned with the environment and are beginning to avoid products that unnecessarily damage the environment. There is also taxes and fines that will damage profitability if they don’t act on this now.

Do you like the look of Unilever Shares and will you be investing? Let us know your opinion in the comments section.

lump-sugar-548647

Investing In Royal Dutch Shell (RDSB_RDSA) Stock – Should You Buy?

Shell is the FTSE 100’s Oil goliath, and for us investors, the most striking thing about it is its whopping dividend yield, ticking along around 5.75%.

As lovers of cash flow, this is an amazing yield for our portfolios, alongside capital growth. But dividends have been flat for the last several years, with experts not expecting any sudden rises in the short term.

Is the UK stock market’s number one Oil kingpin still worth investing in?

The FTSE 100 – still a haven for Blue Chip Companies

Doom-mongers in the media like to imagine that Brexit and US/China tensions is going to spell the death of the world economy, despite centuries of growth, innovation and prosperity. But companies like Shell laugh in the face of such negativity.

Shell is a cornerstone company of the FTSE 100, the UK’s top index, making up over 11% of the value of the top 100 companies all by itself, but is global in its nature.

Dividends

Dividends – Good Yield, But Where’s My Growth?

Check out their recent dividend history. Shell have flat-lined their dividend payouts at $1.88 for the past 5 years, and are forecast to continue this trend into the current year. Shell announces their dividends in US Dollars because they are an epic global company, and Dollars are the currency of the world. And oil is of course priced in dollars.

They choose to be listed on the UK stock exchange, but like many companies in the FTSE100, their trade is global.

What does this flat dividend line mean for us as investors? Well, the dividend yield is currently 5.75%, which is fantastic for a Blue Chip company, but this chart tells us that Shell aren’t willing or aren’t able to grow their dividends, so investors have been losing out each year to inflation. We like to see companies growing dividends at least in line with inflation.

A reliable 5.75% yield is worth hanging around for though, so let’s look at how recent capital growth in the stock price stacks up to see if that helps sweeten the deal.

Royal Dutch Shell (RDSB) Share Price History

Source: Google

Shell’s Stock Price

Here’s Shell’s recent stock price history. We can see that it’s been tracking slightly upwards over the years, and is currently at a relatively high price point when compared to its recent history. Could this mean the price is more likely to fall than rise in the next couple of years?

It’s impossible to say, but with the US/China trade war and a pinch of Brexit uncertainty, we wouldn’t be surprised if the share price were to fall in the short term – especially if a global downturn occurred, which would likely effect oil prices. But Shell’s history of steady share price growth is one check in the “pro” column for this stock.

PE Ratio

Price Earnings Ratio

Shell had a Price Earnings ratio at April 2019 of 11.3. The price earnings ratio is calculated as Share Price divided by earnings Per Share, so the higher the share price, the higher the Price Earnings ratio. Likewise, if the company’s earnings fell, the PE ratio would increase.

We want to see a low PE ratio relative to a company’s history and to its competitors, so we know we’re getting value for our invested money.

But don’t forget this can also be a signal that its future might be bleak – perhaps other investors know something you don’t.

We can see that the share price had fallen over the last couple of years relative to earnings, so to invest now would be at a bargain price compared to a couple of years ago.

11.3 is also low compared to one of Shell’s main competitors in the Oil industry, Exxon Mobil, who has a PE Ratio of 16.5 at April 2019.

Shell’s PE ratio is 32% lower than Exxon’s, possibly making Shell a good place to invest in Oil in terms of the value of share capital.

 

Long Term Investment Horizon

We also need to look at soft factors when predicting the future performance of a stock.

Let’s look at the long term bumps in the road for Shell investors:

Fracking
Drilling for Oil

Oil as a Dying Fuel

There isn’t much of a worry that Oil is disappearing as a world resource anytime soon, despite public perception. There’s TONNES of the stuff under the ground, and new sources are being found all the time.

The problems are rather practical and political. New sources of oil are being found in the world’s oceans, but getting drills to them isn’t easy – and there’s the environmental impact of accessing that oil to consider.

Protest
Millennials demanding cleaner energy

New fracking technology could keep the oil industry going for a long time, but there is strong political push back against such projects due to the perceived impact on the environment.

As the world turns to new energy sources such as wind and solar, demand for oil will likely fall. But a company as big as Shell surely would adapt to such an eventuality.

Besides, when the sun isn’t shining, and the wind isn’t blowing, Oil is going to be one of our main fall-back fuels for many years to come.

Rain
When the sun isn’t shining, and the wind isn’t blowing, oil will be needed

Should I Buy Shell Stock?

In Summary, we believe Shell is a reasonable stock to hold in your portfolio.

Its high dividend yield, solid PE ratio, steady share price growth and strong history as a staple of the FTSE100 make it a dependable cash flow asset.

But its dividend payout is not increasing, and its long term horizon is littered with potential political pitfalls as the Millennial Generation demand cleaner energy.

Andy has held Shell in his portfolio for many years and will continue to hold, whilst those juicy cash flows keep coming in. But buying directly into individual stocks is not the only way.

There are alternatives to buying Shell stock directly – being such a large chunk of the FTSE100, you could invest in a FTSE100 tracker, which gives you exposure to this great company but also diversifies you across the rest of the top companies in the index.

Do you hold Shell shares in your portfolio? How do you rate its performance? Let us know in the comments section.

Investing In Coca Cola (KO) Stock – Should You Buy?

Coca Cola is probably the best known brand in the world and is one of the biggest US blue chip companies.  Investors recognise Coke as a strong dividend payer, and at first glance it should be a great fit in our portfolios at Money Unshackled, given that we crave dependable passive income.

But recent years have seen Coke struggle in a new world obsessed with ethics & health, and with a rocky world economy. Is Coca Cola still worth investing in?

Blue chips in poker

Why We Like Blue Chip Dividend Stocks

Blue Chip stocks get their moniker from the game of Poker, where traditionally the “blue chips” hold the highest value. In the stock market, blue chip companies are the biggest, most established global companies, and tend to offer their investors dependable dividends in place of fast growth.

You’re never going to get rich overnight by holding a blue chip stock, as they are mostly already past their main growth stages.

But our portfolios benefit from holding a foundation of these dependable assets that provide steady cash flow to support our lifestyles.

Dividends

Dependable Dividends

This is what we mean by dependable.

Dividend investors have seen big rewards from holding Coca-Cola stock, with more than 50 years of consistent, reliable dividend growth. The current annualised dividend payout is forecast at $1.60 for 2019, and pays quarterly, with 40 cents paid already in March 2019.

The current yield on the share price is 3.38%, which is around what it has been historically too. A company cannot control its yield percentage as it cannot control its share price, so the consistent dollar returns are what we look at for historical analysis.

But as investors we like to know what the current percentage rate of return is too, and 3.38% is pretty decent if we can also achieve capital growth on top too.

Share Price

Coke’s Stock Price (KO)

A mid-range dividend means we also crave returns from stock price growth to sweeten the deal. Here’s Coke’s recent stock price history. We primarily care about the last several years when looking at stock price as it’s the best indicator of current performance, but even this is highly imperfect as an indicator of future performance.

The best we can take from looking at the share price history is that Coca Cola’s share price has been steadily growing at a consistent rate, with regular peaks and troughs. This gives us some confidence that Coke will continue to experience price growth to supplement our gains from dividends.

The low volatility gives us a little bit of comfort which may help you sleep at night.

PE Ratio

Coca Cola’s Price Earnings Ratio

Coca Cola had a Price Earnings Ratio of 31 at March 2019. The price earnings ratio is calculated as Share Price divided by earnings Per Share, so the higher the share price relative to earnings, the higher the Price Earnings ratio. Likewise, if Earnings per share reduced, the PE ratio would increase.

This is what happened in late 2017/early 2018 when we saw a spike in PE ratio, due to a one-time charge of $3.6bn related to the repatriation of overseas earnings following the Tax Reform Act in the US, temporarily hurting Coca-Cola’s net earnings, which fell by 81%.

The PE ratio has now settled back down to around the 30 mark, where historically it had been around 20. This higher PE ratio of 31.2 compared to the history could mean that Coca Cola stocks are now overpriced compared to the value you could attain pre 2017.

But how does Coca Cola’s PE Ratio compare to other companies? In the US beverage industry, the average PE Ratio is around 27, with the market as a whole averaging around 18.

This suggests that Coke is overpriced compared to both the industry and the market.

Coca Cola as part of everyday life

Stock Picking – Soft Factors

There are many soft factors that we must look at when predicting the future performance of a stock.

The financial histories we have just looked at are historical, not current, and definitely don’t reflect the future, rather they only hint at how capable the company has been up until now.

Here’s 5 soft factors we should consider alongside the numbers

1)            Endorsed by the wallet

A good endorsement of a stock is whether investment gurus actually put their money where their mouth is and buy it.

Warren Buffet is the biggest guru of them all, and he holds significant shares in Coca Cola.

We could all do a lot worse than following Warren Buffet, and this endorsement by the wallet is a check in Coke’s favour.

Brand power is everything in business

2)            Brand Power

Coca Cola has been around for more than a century and its brand has endured the test of time. It consistently tops the list of world’s most recognised brands, and is part of the everyday lives of billions of people worldwide. This supports the theory that Coca Cola is a stable business that will continue to deliver dividends to its shareholders, and it’s everyday use by billions makes Coke a safe haven during market downturns.

3)            Competition

Coke doesn’t really have to worry too much about competition. It is by far the market leader in the carbonated beverages market, and it’s customers are loyal – Coke are masters of marketing , with adverts that show Coke as being part of everyday life. We all have a preference between Coke and Pepsi, and given the choice will stick faithfully to our drink of choice.

Coke is a global company that dominates the market in many developing nations, with opportunity still for growth in foreign markets.

Sugar - The 21st Century Bogeyman

4)            Sugar – the 21st Century Bogeyman

The world is waking up to the fact that sugar has direct links to obesity and Type 2 diabetes, and governments are starting to take action against companies with products that contain significant amounts of the stuff – products like Coke.

In the UK, the Sugar tax has artificially inflated the price of a bottle of Coke above what would be the market rate – perhaps not significantly enough to make a bottle unaffordable, but it has certainly had the effect of highlighting to the public that the drinks they are buying are considered unhealthy.

Luckily for Coca Cola, of their 3 main products, Diet Coke and Coke Zero are both incredibly popular and seen as alternatives to original full sugar Coke, and sales of these Diet Coke and Coke Zero have risen massively in the last few years. In the UK, Coke Zero is already the biggest selling drink-even more popular than the original Coca-Cola.

We think that Coca Cola’s low sugar range and diversification into non-cola products like it’s purchase of Costa Coffee in the UK will allow them to weather this storm, but the continuing focus on health is a risk factor to consider

Main products Diet Coke and Coke Zero both contain alternatives to sugar that are also considered by most health bodies to be bad for health.

The public is becoming less forgiving of litter and waste

5)            Environmental concerns

One factor to keep on your radar is environmental and green regulations that will likely come down the line in the years to come. As investors we buy for the long term, and the world’s renewed focus on plastic and other waste could mean that in the next decade there will be crackdowns on products with single use containers like those sold by Coca Cola.

As a producer of billions of bottles and cans, Coke is indirectly one of the main contributors to litter in the environment, and we would expect Coke to be among the companies first on the firing line if world governments decide to act.

We expect they would still survive, but the share price would likely take a beating in this scenario.

Everyone has a preference

Should I Buy Coca Cola Stock?

In summary, we believe Coca Cola is a reasonable stock to hold in your portfolio. Its consistent dividend, steady share price growth and strong brand and customer base make it a dependable cash flow asset.

But its yield is not that great, and the future is littered with potential pitfalls as the health and environmental lobbies gain in strength and legal backing. Also, that PE Ratio gave us cause for concern as it suggests Coke’s stocks might be overpriced compared to its own history and against other stocks in the industry.

There are better dividend stocks out there, and if your portfolio is small and your investable cash is limited, you might instead choose to place your cash into alternative holdings.

Do you hold Coca Cola stock in your portfolio? How do you rate it’s performance? Let us know in the comments below.

Investing In Coca Cola (KO) Stock – Should You Buy? Video Review:

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