Unilever (UL 0.12%) is one of the largest consumer goods producers in the world, competing with the likes of Procter & Gamble and Nestlé. The company has been making changes as it looks to focus on business growth. Investors have rewarded it over the past year amid rapid price hikes.
However, the stock remains down about 15% from its three-year highs. Are the shares appealing now at their current price?
Getting back on track
Unilever, which owns iconic brands like Dove, Hellmann's, and Ben & Jerry's, has gone through major changes in recent years. That's included a CEO turnover (with another one on the way), a transition from a dual listing to a single listing in the U.K., the sale of slower-growing businesses (like teas), a renewed focus on supporting its largest and most important brands, and the acquisition of faster-growing, bolt-on nameplates (such as Liquid I.V.).
It isn't exactly a new company. Yet, with all these changes, the $130 billion market-cap giant is different than it was not too long ago.
Image source: Getty Images.
Last year, meanwhile, was a pretty good one for Unilever's updated business. Organic sales advanced 9%, with price increases of 11.3% offset by volume declines of 2.1%. The company has been pushing hard on price increases in the face of inflation, with a string of steadily larger hikes over the past five quarters. And while volume declines have increased as prices have gone up, the declines have been fairly modest.
Part of that is likely because of the company's heavy exposure to emerging markets, at roughly 60% of sales. Highlighting this, organic sales growth in emerging markets in 2022 rose 11.2%, despite a 1.3% decline in the large Chinese market, while only advancing 8% in the U.S.
The company's exposure to emerging markets is an attractive feature as such countries are expected to grow more quickly than developed markets over time. Last year they were a specific benefit because emerging markets are used to higher inflation rates and, thus, were more willing to accept rising prices.
The stock is getting back on track
The consumer staples giant is very clear that it needs more price increases in the coming year to offset the impact of its own rising costs. So, in some ways, it is still making changes to support its long-term growth. And yet, given the reasonably strong showing last year, the stock has increased in price by around 20%. That's far better than the 5% decline experienced by the S&P 500 index.
That price increase has pushed the yield down from a peak of around 4.5% in early 2022 to roughly 3.3% today. Using dividend yield as a rough gauge of valuation, 4.5% is toward the high end of the stock's historical yield range while 3.3% is basically just middle of the road over the past decade or so. And yet, the stock is still down about 15% from its highs over the past three years.
That said, looking at the stock relative to the S&P 500 index over that three-year span, the two are now roughly neck and neck, with the broader index down 13% from its high-water mark. But Unilever fell much further between mid-2020 and late 2022, so it has basically just made up some lost ground as its business outlook has improved.
The big takeaway is probably that Unilever is in better shape now than it was before the coronavirus pandemic got underway in 2020 -- but it isn't a screaming buy today.
Reliable dividend stock, not a great bargain
For investors trying to find a decent yield in the consumer staples space, Unilever is worth a look. But it really isn't as attractive as it was when the yield was north of 4%. If you own the stock, it is probably worth keeping, but if you have cash to put to work today and want to buy something that looks historically cheap, you might want to consider other options.
Hormel, for example, has a historically high yield right now as it faces down what appear to be temporary headwinds. That's kind of what Unilever looked like not too long ago.
