Freshen Up Your Portfolio With This Overseas Dividend Stock

When investors think of buying consumer staples, U.S. giants like Procter & Gamble or Colgate-Palmolive probably come to mind. But investors should also consider overseas-based consumer products companies, too, such as Unilever plc . This is a high-quality company with a long list of strong brands that have helped Unilever hold up extremely well during the coronavirus pandemic, while providing considerable long-term growth especially in the emerging markets. Unilever also offers a 3.3% dividend yield, which is significantly higher than the dividend yield offered by its U.S.-based peers. Unilever has a long history of raising its dividend, and is likely to continue raising the dividend in the future. Therefore, Unilever is an appealing choice for income investors looking for higher yields in the consumer staples sector, with long-term growth potential as a bonus. A Clean History Unilever is one of the largest consumer goods companies in the world, producing and marketing ~400 brands in nearly 200 countries. Its products are used by more than two billion people every day. Unilever has a balanced business between food and personal care products. Approximately 21% of 2019 sales came from home care products, 42% from beauty and personal care, and 37% from food and refreshment. Unilever is a large-cap stock with a market capitalization of $155 billion. The company in late July reported financial results for the first half of fiscal 2020, showing a decrease in the demand for personal care products, because of the pandemic. But, it enjoyed increased demand for food, ice cream, tea and saw a double-digit sales growth in hygiene products. Overall, Unilever reported a 0.1% decrease in its underlying sales, but its earnings per share grew 6.4%, thanks to margin expansion and lower taxes. It was the first quarter in 15 years in which Unilever failed to grow its sales. The reason was the pandemic, which has caused a severe global recession. However, analysts were expecting a -3.9% drop in sales. Therefore, as the company exceeded analysts' consensus by a wide margin, the stock has continued to increase over the course of 2020. The coronavirus will keep a lid on Unilever's growth this year. But the company is holding up fairly well all things considered, and continues to generate strong cash flow which fuels its steady dividend payments to shareholders. Investors can expect Unilever to return to growth once the coronavirus ends. Growth Prospects Unilever has grown its earnings-per-share at a 4.4% average annual rate in the last decade. It is expected to post slightly lower earnings this year due to the global recession that has resulted from the coronavirus. However, we view this headwind as temporary and expect the company to return to its multi-year growth trajectory from next year. Management has provided guidance for 3%-5% adjusted annual revenue growth in the long run. As the company will also boost EPS by expanding the operating margin and share repurchases. Given the low comparison base from the dip in earnings this year, a forecast of 5% annual EPS growth seems reasonable. One of Unilever's primary growth catalysts is the emerging markets. As opposed to many domestic consumer products giants that source most of their sales in the U.S., Unilever derives approximately 60% of its revenue from the emerging markets. This is a long-term positive for the company, as it will benefit from the higher long-term economic growth of under-developed nations in Latin America, Asia and Africa. Over the past 20 years, Unilever has generated 8% annual sales growth in the emerging markets, consisting of 4% volume growth and 4% pricing growth. Another growth catalyst for Unilever is e-commerce. Even before the coronavirus pandemic, consumers were rapidly shifting their spending online. Consumer products manufacturers like Unilever are aggressively building up their e-commerce capabilities to respond to this trend. The onset of the coronavirus crisis has only accelerated this trend, and Unilever is reporting impressive growth in e-commerce. For example, e-commerce sales soared 62% in the most recent quarter, and now represent 8% of total company revenue. Unilever has a significant competitive advantage, namely the strength of its brands. The company owns 14 of the top 50 global consumer brands. Just a few of its core brands include Dove, Ben & Jerry's and Knorr. Thanks to the strength of its brands and its great execution in its growth initiatives, Unilever has always enjoyed strong and reliable free cash flows and has proven much more resilient to recessions than the vast majority of stocks. Unilever: Steady Dividends During Recessions Unilever has been able to raise its dividend for 39 consecutive years in its base currency. Along with its quarterly results, the company declared a quarterly dividend of 0.4104 in terms of euro per share. In U.S. dollars, the quarterly payout of $0.49 per share represents an annualized payout of $1.96. This means Unilever stock has a dividend yield of approximately 3.3%. Unilever is a highly appealing dividend stock, particularly on a relative basis. The major U.S. consumer product manufacturers Procter & Gamble and Colgate-Palmolive both currently yield 2.3%, while Kimberly-Clark is only slightly higher at 2.7%. By comparison, Unilever has a significantly higher yield among its peer group. Unilever's dividend payout is highly secure. The company has a dividend payout below 70% expected for 2020, leaving sufficient coverage for the dividend. A steep decline in earnings seems unlikely from here, as the company has so far performed steadily to begin 2020. Unilever also has a healthy balance sheet which helps protect the dividend, with a strong credit rating of A+ and ratio of 1.9-times for its net-debt-to-adjusted earnings before interest, taxes, depreciation, and amortization. With interest rates near zero and the S&P 500 rallying to a record high, the search for yield is getting more difficult by the day. Investors can still find strong yields in the stock market, particularly when it comes to international stocks which have not enjoyed nearly as strong a rally as U.S. stocks in the past few months. But Unilever is a high quality company with strong brands that should generate lots of cash flow, even in a weak economy. (CL is a holding in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells this stock? Learn more now.)

Freshen Up Your Portfolio With This Overseas Dividend Stock

Unilever has a clean history of delivering dividends, even when economic bubbles burst.

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