Benjamin Graham, the man who helped train Warren Buffett, described Wall Street as Mr. Market, a partner that was prone to fits of enthusiasm and despair. A key goal, according to Graham, was to buy good companies when Mr. Market was downbeat so you could get a bargain price on the stock.
That's what I think is going on with Unilever (UL 5.93%) today. Here are five reasons I just bought the stock.
1. Relative yield
I'm a dividend investor, and one of my key valuation tools is relative dividend yield. Essentially, I'm looking for companies that have historically high yields that seem out of line with business fundamentals. Right now Unilever's dividend yield is roughly 4.4%. That happens to be the highest the stock has offered since the 2007 to 2009 recession. This was what got me interested in this consumer staples giant, but not what actually made me buy it.
Image source: Getty Images.
2. Failing the test
It might sound strange, but I like to see companies that have faced some crisis and learned from it. In this case, Unilever has made some important changes in recent years.
For example, it shifted from an odd dual-share structure in which it was based out of two countries, and now is just a U.K. firm. That came after investors pushed for the change to simplify the business.
At about that time, a new CEO was installed and started out with high ideals and ambitions to quickly reshape the business. Investors quickly made clear that they didn't want that, culminating in early 2022 when the stock crashed on word that it was looking to make a major acquisition. The big takeaway here is that investors want Unilever to work incrementally and internally.
That sounds reasonable to me, and the company seems to have finally gotten the message, noting that it recently added veteran consumer goods investor Nelson Peltz to the board. Peltz, for reference, helped get Procter & Gamble out of a business slump not too long ago.
3. Great brands
What's so interesting about Unilever is that it has an impressive portfolio of brands underpinning its business. That includes names like Dove personal-care products, Vaseline, Ben & Jerry's, Hellmann's, and many more.
Despite the company's recent missteps on the strategic front, these are brands that are dominant and popular. That gives management a lot of leeway for error and a strong base for slow and steady growth.
4. Bigger than the United States
I noted brands that you probably know about if you live in the United States. But I already own a number of strong U.S. consumer-staples players. I didn't really want to add another one. And Unilever fits that bill because only 20% of its revenue is derived from North America. A huge 60% is derived from emerging markets -- regions that should grow more quickly over time than more-developed markets, and that complements my portfolio very well.
5. An industry giant
On top of that, Unilever has a huge $110 billion market cap. While it isn't some tiny upstart, it has the heft to buy upstarts, like it did with Dollar Shave Club. The idea being that it has the resources to take a smaller, faster-growing brand and make it much bigger, even if this particular example never pans out.
Part of that is the company's relationship with retailers, given that it has the heft to invest in research and development, advertising, and distribution that smaller players might lack. There's a lot that goes into all of this, but in the consumer staples space, size matters. And Unilever has the scale to compete against just about any player.
It'll take some time
I'm not expecting Unilever to be an overnight success in my portfolio. It has real issues to deal with, including the sizable uptick in inflation that has investors worried today. But I believe it will survive and thrive over time. Meanwhile, I'll sit back and collect a material dividend. I'm good with that, even though I'll be keeping a close eye on management to make sure it steers the ship in what I think is a reasonable direction.
