After making the decision to fill up my remaining allocation of my shares ISA with some surplus money I had in my cash ISA (£4,745), see Filling up ISA - Use it or lose it, I now had some share shopping to do!
I'm still in the early stages of Dividend growth investment, and as you can see from my portfolio, I haven't invested in a lot of companies at present. I was planning on spreading out the money I had into 4 companies (£1,186 per company including fees). This would expand the number of companies I owned shares in, and would spread the risk of my investments. My plan was to buy shares in some stable companies, with positive Dividend growth (at least 6%), sufficient dividend cover (at least 1.5), and ideally at a price that is viewed as undervalued.
Unilever was my first choice.
I bought 49 shares at a price of 2364.65p per share, which came to £1176.42. It paid out a modest 3.7% dividend and it had 1.49 dividend cover for 2013/2014.
The dividend yield isn't the highest around, but the company's looks to have a strong cash flow. Unilever did reduce its final dividend payment in 2009, when the country was in financial crisis, but it's payout has now recovered and it should see continued growth going forward.
They featured in the Motley Fool's top 5 shares to retire on. I've picked out some of the points that appealed to me:
Unilever boasts an impressive portfolio of brands across personal care (Lux and Dove), foods (Knorr and Hellmann’s), home care (Cif and Surf), and refreshment (Lipton and Heartbrand). In fact, it has 12 brands that can boast more than £1 billion in sales a year, and its total annual sales come to more than £50 billion.
Unilever sells its products in 190 countries to 2 billion consumers every day.
Unilever’s products tend to be relatively inexpensive and purchased frequently (they’re sometimes referred to as Fast Moving Consumer Goods, or FMCG), and they are sold around the world.
This should mean that, as long as the company’s brand appeal remains intact, its cash flow should be relatively resilient, regardless of economic conditions. People like to eat and shower (though generally not at the same time), even when times are tough.
The company’s focus on emerging market consumers should mean that it can also perform well when things pick up. Increased wealth and buying power in fast-growing markets should drive demand for more dishwashers and washing machines, which should create a whole new group of Unilever customers. This steady stream of sales, and the company’s emphasis on improving efficiency wherever possible, mean the company’s £7.7 billion of net debt doesn’t overly concern us.
Over the last twelve months, Unilever generated over £3.3 billion in free cash flow, which easily covered its debt obligations. Reassuringly, much of the company’s debt maturities are spread out between 2015 and 2032, which shouldn’t present too much of a repayment or refinancing problem.
Overall, I believe this is a really stable company that's currently slightly undervalued. I feel that I have a good opportunity to benefit from capital growth and stable dividends for many years to come.
Thanks for reading!
Labels: Stock Purchase