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Unilever Looks Set to Raise Dividend by Mid-Single Digits

Unilever shares look a touch overvalued, particularly after Wednesday's uptick, but the dividend outlook is promising

Holly Cook 23 January, 2013 | 6:07PM

Shares in Unilever (ULVR) ticked up more than 3% on Wednesday after the firm’s fourth-quarter and full-year results impressed. The household and personal products manufacturer  reported a near-8% jump in sales in the fourth quarter, fuelled by higher prices and improved volume, and building further on the previous year’s solid near-7% underlying sales growth. 

“Unilever once again proved that the breadth and depth of its geographic and product portfolio is a force to be reckoned with,” commented Morningstar analyst Erin Lash. The firm is not immune to competitive pressures amid a lacklustre consumer spending environment, Lash noted, and overall results for fiscal 2012 came in about where she had expected.

Lash may marginally increase her fair value estimate to account for additional cash generated since the last update, but continues to view the shares as modestly overvalued “particularly after accounting for the market’s favourable response to today's results”. Lash added that she is “mindful of the impact that changes in consumer demand in North America and Europe could have on the firm's near-term prospects”.

On a more positive note, Unilever’s cash flow generation has been impressive and Lash believes the firm is likely to continue putting its cash towards expanding its emerging-markets presence. Absent an acquisition, Lash expects Unilever will reinvest its excess cash in the business or return it to shareholders in the form of higher dividends or share repurchases. “We forecast that the firm will raise its shareholder dividend in the mid-single digits annually during the next five years, while also repurchasing about 2% of shares outstanding each year,” Lash commented. The shareholder dividend currently yields 3% annually.

Unilever carried a 2-Star rating as at close of business on January 23, indicating the stock is moderately overvalued versus Morningstar's fair value estimate.

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The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article
Security NamePriceChange (%)Morningstar
Rating
Unilever PLC2,675.42 GBX-0.06
About Author Holly Cook

Holly Cook  is Managing Editor of Morningstar.co.uk