1 Recession-Proof Dividend Stock to Buy and Hold Right Now
May 20, 2022
Stock markets in the US are making headlines for all the wrong reasons. After a Covid-19 pandemic surge, on the back of unprecedented liquidity and rock-bottom interest rates, prices are now falling sharply.
As I’ve mentioned many times before, this is down to various factors such as higher interest rates, multi-decade high inflation, a war in Ukraine, and – more recently – talk of an impending recession in the US.
Yet some stock markets are proving more resilient than others. One big stock market, the UK, is home to many traditional “value” and “defensive” stocks.
In fact, its benchmark FTSE 100 Index is down only around 3% so far in 2022 – easily outperforming the S&P 500 Index’s 18% slump year-to-date.
The recent market moves have been a good reminder that long-term investors should have diversification in their portfolios.
Consumer goods giant Unilever PLC (LSE: ULVR) is one of the biggest stocks listed on the London Stock Exchange.
With a market cap of around £89 billion (US$110 billion), Unilever owns over 400 daily essential brands, including the likes of Dove soap, Magnum ice cream, Rexona deodorant and Hellmann’s sauces.
As we all know, spending on these types of goods tends to hold up well in recessions. Who will stop using Persil (a detergent) or Comfort (a fabric softener) – and both Unilever brands – just because the economy isn’t faring well?
That has been evident in Unilever’s latest earnings results for the first quarter of 2022.
Showing pricing power
With inflation rising, it’s important that long-term investors remain invested in companies that display pricing power.
Fortunately, that’s something that Unilever has in spades given the ubiquity of its goods and the scale that it operates at.
Much like its peer “over the pond” – Proctor & Gamble Co (NYSE: PG) – Unilever has managed to raise prices for its goods.
In its most recent first-quarter 2022 earnings, Unilever announced that underlying sales growth (USG) saw an increase of 7.3% year-on-year while underlying price growth (UPG) was up 8.3% – demonstrating its pricing power.
This was partially offset by an actual 1.0% year-on-year decline in underlying volume growth (UVG) (see below).
Source: Unilever Q1 2022 earnings presentation
Meanwhile, turnover for the period hit €13.8 billion and was up 11.8% year-on-year. What was mor eimpressive is that growth was evident across its various segments.
Unilever operates three core segments and they all saw healthy USG for the first quarter; Beauty & Personal Care (7.1%), Foods & Refreshment (6.5%), and Home Care (9.2%).
This came amid input costs rising as commodity prices across the board soar. Despite this, Unilever’s management is guiding for its first-half underlying operating margin to be at a healthy range of 16-17%.
While gross margins have taken a hit recently, Unilever does expect these to be restored in 2023 and 2024.
Dividend payer amid volatile times
Finally, Unilever is also a reliable dividend payer. At its current share price of 3,555.89p, it’s London-listed shares are offering investors a dividend yield of 4%.
Over the past decade, Unilever has managed to grow its dividend at a compound annual growth rate (CAGR) of 6.5%, easily outpacing inflation.
With stock markets around the world experiencing some big falls, a position in Unilever now for investors will let them sleep easier at night.
Disclaimer: ProsperUs Head of Content & Investment Lead Tim Phillips doesn’t own shares of any companies mentioned.
Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth.
He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. He is also a certified SGX Academy Trainer.
In his spare time, Tim enjoys running after his two young sons, playing football and practicing yoga.