There’s loads of money in ev­ery­day con­sumer goods

Finweek English Edition - - PRO PICK - BY DUG­GAN MATTHEWS In­vest­ment Pro­fes­sional at Mar­riott As­set Man­age­ment

Ex­pen­sive mar­kets and an eco­nomic growth out­look of ap­prox­i­mately 2% in South Africa sug­gest in­vestors may be dis­ap­pointed with re­turns from lo­cal eq­ui­ties in the years ahead. Given this out­look, Mar­riott i s en­cour­ag­ing in­vestors to take ad­van­tage of at­trac­tive yields on of­fer from First World mega­cap stocks. One of these com­pa­nies is Unilever – a gi­ant in the house­hold sta­ples in­dus­try.

The big­gest driver of cap­i­tal growth is div­i­dend growth, so more pre­dictable div­i­dend growth means more pre­dictable cap­i­tal growth. Unilever’s div­i­dend track record has been con­sis­tent and re­li­able over many years, as can be seen in the chart be­low.

Mar­riott in­vests in com­pa­nies that tend to share five char­ac­ter­is­tics, all of which en­sure pre­dictable div­i­dend and cap­i­tal growth: 1) they fulf il a ba­sic need; 2) they own strong brands; 3) they have pric­ing power; 4) their mar­kets are grow­ing; and 5) they have diver­si­fi­ca­tion. Unilever ticks all these boxes. FUL­FILL­ING A BA­SIC NEED Unilever of­fers a broad range of ba­sic con­sumer ne­ces­si­ties in­clud­ing food,

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15 bev­er­ages, per­sonal and home-care prod­ucts that are used by about 2bn cus­tomers around the world daily. Be­cause of this, the fu­ture div­i­dend prospects of Unilever are un­likely to be ma­te­ri­ally af­fected by any change in eco­nomic con­di­tions, tech­nol­ogy or trends. And this makes div­i­dend growth from the com­pany more pre­dictable. OF­FER­ING STRONG BRANDS The cus­tomer loy­alty cre­ated by Unilever’s strong brands keeps com­peti­tors at bay and en­sures a con­sis­tent de­mand for the com­pany’s prod­ucts. Lip­ton, for ex­am­ple, is the world’s best-selling tea brand. Lux is the world’s most pop­u­lar soap. PRIC­ING POWER Unilever ’ s br a nd dom­i­nance i n con­sumers’ day-to-day ac­tiv­i­ties al­lows the com­pany to pass ris­ing in­put costs on to con­sumers with­out sac­rif ic­ing turnover and mar­gins. This is ev­i­dent in Unilever’s op­er­at­ing profit mar­gin over the past 10 years, as shown on the right. GROW­ING MAR­KETS Driven by e c onomic g r owth i n emerg­ing mar­kets, al­most a quar­ter of a mil­lion peo­ple join the mid­dle class

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2011 ev­ery day. About 57% of Unilever’s rev­enue comes from these mar­kets and this is favourable for div­i­dend growth. Unilever’s Lux and Lifebuoy brands, for ex­am­ple, are listed in the top 10 con­sumer brands in In­dia, one of the fastest-grow­ing economies in the world. DIVER­SI­FI­CA­TION Well-di­ver­sif ied com­pa­nies pro­vide more pre­dictable div­i­dend and cap­i­tal growth as their suc­cess is not tied to the for­tunes of one par­tic­u­lar econ­omy or de­pen­dent on the suc­cess of one par­tic­u­lar prod­uct. Unilever cer­tainly has diver­si­fi­ca­tion – the com­pany has more than 400 con­sumer brands, which are sold in 190 coun­tries around the world.

So Unilever ticks all the boxes for pro­duc­ing pre­dictable div­i­dend and cap­i­tal growth over the long term. And its cur­rent div­i­dend yield of 3% is an ac­cept­able en­try point for new in­vestors. These are the rea­sons Mar­riott be­lieves Unilever should form a core hold­ing in an in­vestor’s port­fo­lio.

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