Unilever (UL -0.75%) appears to be on sale. The British consumer goods giant currently offers investors a historically high yield of 4.2%, a level last seen during the 2007-2009 recession.Now, there are some good reasons. But with an incredible history, this dividend stock is worth a closer look as the future is starting to look bright again.
A strong business
Consumer products companies are really driven by the brands they own. And with a history that dates back to the 1800s, Unilever has a pretty strong portfolio with iconic names like Hellmann's, Dove, and Ben & Jerry's, among many others.
This provides a solid foundation for the company's business, since consumer staples like these are purchased on a regular basis in just about every economic condition. While customers might trade down to lower-priced fare, which Unilever also offers, they just can't stop buying things like soap and deodorant.
Having great brands doesn't guarantee success, but it does minimize the hit that can come when management takes its eyes off the ball. Notably, Unilever's sales have been anemic, growing at an annualized rate of less than 1% over the past three years. Annualized earnings growth over that span was negative. Clearly, it's not the best of trends, but there has been a lot going on.
For example, Unilever changed its corporate structure in 2020, switching from a dual-country setup to a single listing in Great Britain. In addition, the company changed its CEO, with the new leader looking to make his mark on the company at around the same time that the pandemic started to take hold.
Also in the mix was a failed attempt to buy GlaxoSmithKline's consumer healthcare business, an idea that investors didn't like anyway. In the end, Wall Street is focusing on the negatives today and not enough on the core strength of the business.
This, too, shall pass
Unilever is a very old company, and its fortunes have waxed and waned over time. That's not unusual at all, as companies tend to move between periods of strength and weakness. It's just how businesses work, and right now Unilever is at the weak side of this normal pendulum pattern. But because of the underlying strength of its brands, it is well-positioned to fix the problems it is facing today.
On that score, management has taken to heart the negative pushback over its attempted acquisition and is now focused on fixing from within rather than trying to use big acquisitions to boost growth. To help with this effort, the company has redesigned its corporate structure to increase accountability. The hope is that this will push the company's leadership team to improve results and give it the power to act more quickly.
While Unilever is working on this, it is also dealing with a dissident shareholder, Nelson Peltz. But instead of fighting him, the company recently added the activist investor to its board of directors, including a position on the company's compensation committee.
This is notable because Peltz was involved in the turnaround of competitor Procter & Gamble (PG -3.48%) not too long ago. While there's no way to predict if there will be similar success at Unilever, Peltz's presence is unlikely to hurt.
The big takeaway
All in, Unilever has a strong core business and, at the same time, knows it has a growth problem. It is actively working to solve the issue and has the help of a friendly outsider with experience in turning consumer products companies around.
If you buy today you can collect a historically high yield while you wait for Unilever to right the ship, which seems the likely outcome here, even if the process takes a while to complete.
Buying before everyone else sees the silver linings in today's clouds probably won't win you any accolades at cocktail parties, but if you can stomach the uncertainty, later down the road you might just get to brag about the low price you got.