3 Reasons Why You Should Invest in Unilever

Unilever will deliver good value to shareholders in the long run. It also pays a high dividend yield, better than that of both Procter & Gamble and Colgate-Palmolive.

Jan 27, 2014 at 1:58PM

Unilever (NYSE:UL) has made its shareholders cheerful with its improving operating performance for fiscal year 2013. The company managed to grow its underlying sales by 4.3%, including a 2.5% increase in volume and 1.8% rise in price. Its emerging markets underlying sales also achieved 8.7% growth for the full year.

Indeed, Unilever, along with its global peers Procter & Gamble (NYSE:PG) and Colgate-Palmolive (NYSE:CL), offers investors peace of mind when investing for the long run. Personally, I think there are four main reasons why investors should stay invested in Unilever for a long time.

Unilever's quality of growth is good
First, Unilever has experienced good growth in 2013. More importantly, its growth is high quality. Chief executive Paul Polman mentioned that with 4.3% underlying sales growth, around 55% of the company's business was building share. The core operating margin was significantly improved, by 40 basis points, to 14.1%, driven by a 110 basis points rise in gross margin.

Unilever has a history of committing its investments to driving brand operating performance. In 2013, Unilever raised its investment by €460 million to strengthen the company's overall brands. As a result, for the last five years, the number of brands, which delivered more than €1 billion in turnover, has increased from 11 to 15. Procter & Gamble has made similar progress with more billion-dollar brands. Since 2000, Procter & Gamble has managed to increase the number of its billion-dollar brands from 10 to 22.

Cost-saving initiatives
Second, in order to fight against slow growth in emerging markets, Unilever has focused extensively on cost-saving initiatives. Unilever plans to reduce its marketing headcount by 12% worldwide, or equivalent to more than 800 jobs, especially in the U.S. business. By the end of 2014, Unilever expects to trim the number of SKUs (stock keeping units) by 30% to save costs on agency and commercial-production expenses. 

Moreover, its non-working media as a percentage of total advertising and promotions (A&P) will be reduced from 32% in 2010 to 24% in 2012. Over the long term, Unilever will keep this non-working media percentage as low as 20%. During the next year, Unilever targets savings of €500 million ($683 million) by cutting jobs, improving the supply chain, and other processes' efficiencies.

Procter & Gamble and Colgate-Palmolive have also focused their efforts on reducing costs in order to improve overall profitability. Procter & Gamble has reached $1 billion in savings for the last two years and is on track to meet its $10 billion savings program for the 2012-2016 period. It also had a geographic restructuring, such as merging the Indian unit with the Middle East and Africa region's business to enhance sales growth and save on costs for the whole company.

Colgate-Palmolive is also ready to spend $1.1 billion to $1.2 billion for its four-year global growth and efficiency program. By simplifying workflow and saving structural costs, Colgate-Palmolive expects to save $365 million to $435 million annually.

High dividend yield
Last but not least, income investors can get excited with its decent and consistent dividend payments. At the current trading price, Unilever offers its shareholders a dividend yield of 3.6%, the highest among the three. Procter & Gamble ranks second with around a 3.1% dividend yield, while the dividend yield of Colgate-Palmolive is the lowest, at only 2.1%.

My Foolish take
With a leading position in the global consumer-goods industry, Unilever is worthy of a long-term investor's portfolio. Unilever will definitely improve its overall profitability with its good quality growth and cost savings initiatives. Moreover, investors could also get the juiciest dividend yield among the company's global peers.

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Anh HOANG has no position in any stocks mentioned. The Motley Fool recommends Procter & Gamble and Unilever. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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