The Unilever (LSE:ULVR) share price has fallen by 10% since the start of the year, putting it at a 52-week low. Right now, the stock is trading close to its February 2017 levels.
The main reason for the decline is inflation, but this has been falling in the UK, Europe, and the US recently. But while the market is still discounting Unilever shares, I think now is the time to consider buying.
Passive income
First things first – I don’t see Unilever as a stock that’s going to make investors rich. The company’s earnings per share growth over the last decade has averaged around 6.5% per year – roughly in line with the FTSE 100.
The business isn’t known for explosive growth and I don’t think anyone should expect that going forward. But it’s known for a steadily growing dividend, which looks attractive to me after the latest share price declines.
Right now, the stock has a dividend yield of close to 4%. And with management targeting sales growth of between 3% and 5% a year along with expanding margins, I think there could be good returns at today’s prices.
If the firm achieves its most pessimistic growth estimates, the average annual yield will be 4.5% over 10 years and 5.2% after 20 years. With bonds offering 4.2% and 4.6%, respectively, the stock looks much more promising.
Inflation
Rising costs have been forcing the company to raise its prices. The trouble is that – even with brands as strong as Unilever’s – there are limits to how far this can go before customers start switching to cheaper alternatives.
The latest trading update bore this out – revenues grew by 5.2%, as a 5.8% increase in price caused a 0.6% decline in volumes when consumers opted for cheaper alternatives in the cost of living crisis. The stock fell 3% as a result.
But I think it’s important to remember that inflationary pressure seems to be easing. In the UK, Europe and the US, central banks are making progress towards bringing the rate of inflation under control.
If this can continue, then the major headwind Unilever has been facing might soon be about to subside. And if that happens, a price-to-earnings (P/E) ratio of 13 looks to me like a good opportunity to buy the stock.
A buying opportunity?
There’s a risk that the drop in inflation might be temporary. With the conflict between Russia and Ukraine ongoing and relations between China and the US tense, it’s not like there’s a shortage of inflationary factors.
In my view, the potential reward is worth the risk. By buying the stock at a 52-week low, investors have a chance to buy shares in a business with a strong record of dividend growth and get a 4.9% yield straight away.
On top of that, I think the new CEO’s strategy to boost growth is a good one. The plan is to invest in the firm’s existing brands, rather than attempting to generate growth through acquisitions.
This reduces the risk of overpaying for a business, as the company arguably attempted to do with Haleon. But with a new strategy, I’m looking at this as an opportunity to buy more Unilever shares for my portfolio.
The post At a 52-week low, I think the Unilever share price might be too cheap to ignore appeared first on The Motley Fool UK.
Like buying £1 for 51p
This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!
Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.
What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?
See the full investment case
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Stephen Wright has positions in Unilever Plc. The Motley Fool UK has recommended Haleon Plc and Unilever Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
