Saturday, November 1, 2008

New Dividend Stock: Unilever (UN)

I recently started purchasing shares of Unilever (UN) over the past few weeks and here is a review of the stock.

UN was formed in 1930 when the Dutch margarine company Margarine Unie merged with the UK's Lever Brothers Ltd. The two companies pooled their interests through a business merger instead of a legal merger. This was simplified considerably in 2006 when shareholders voted at the AGM in favor of establishing a one-for-one equivalence of the NV and PLC shares. Today, Unilever is a leading global supplier of consumer goods across a wide range of food, home and personal products categories. In 2007, the group had sales of $55 billion and an underlying EBIT margin of 12.3%.

The Food businesses, accounting for 54% of sales and 55% of operating profit in 2007, consist of two broad product areas: Savoury, Dressings & Spreads and Ice Cream & Beverages. The Home and Personal Care areas accounted for 46% of sales and 45% of operating profits in 2007.

UN has benefited from the 'Path to Growth' strategy in terms of expanding margins, building momentum of key brands, rationalizing costs, and streamlining the asset base. Impressively, the underlying operating margin is rising despite rising input costs in the first half of 2008. In addition, the developing and emerging markets are expected to continue driving incremental top line growth.

Unilever has simplified the management hierarchy whereby the dual chairman structure has been replaced by a structure comprising a single chief executive officer and a non-executive Chairman. The organizational changes will expedite decision-making, improve execution, and enhance customer focus. The one-to-one equivalence between PLC and NV shares should also improve financial transparency.

The company generates strong cash flow, which is being used to increase shareholder value through share repurchases and dividend increases. S&P has a current yield of 4.10% and a $25 target price for the stock over the next 12 months. UN is also a member of Mergents International Dividend Achievers index.

Disclosure: The Div Guy owns shares of UN at the time of this post.

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