Is Unilever the Ultimate Retirement Share?

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LONDON -- The last five years have been tough for those in retirement. Portfolio valuations have been hammered and annuity rates have plunged. There's no sign things will improve anytime soon, either, as the eurozone and the U.K. economy look set to muddle through at best for some years to come.

A great way of protecting yourself from the downturn, however, is by building your retirement fund with shares of large, well-run companies that should grow their earnings steadily over the coming decades. Over time, such investments ought to result in rising dividends and inflation-beating capital growth.

In this series, I'm tracking down the U.K. large caps that have the potential to beat the FTSE 100 (INDEX: ^FTSE) over the long term and support a lower-risk, income-generating retirement fund (you can see the companies I've covered so far on this page).


Today I'll take a look at Unilever (ISE: ULVR.L) , one of the world's largest consumer goods companies, whose brands -- which include Cif, Dove, Hellmann's, Bertolli, and Domestos -- we all use.

A share to hold forever?
Unilever has a strong presence in emerging markets such as India. This has helped to fuel growth over the last decade. Let's take a look at how Unilever has performed against the FTSE 100 over the last 10 years:

 

2007

2008

2009

2010

2011

Trailing 10-Year Average

Unilever Total Return

35.8%

(13.4%)

30.4%

2%

14.1%

10.4%

FTSE 100 Total Return

7.4%

(28.3%)

27.3%

12.6%

(2.2%)

7.2%

Source: Morningstar. Total return includes both changes to the share price and reinvested dividends. These two ingredients combined are what make it possible for equity portfolios to regularly outperform cash and bonds over the long term.

Unilever has outperformed the FTSE 100 in four of the last five years -- often by a large margin. This has contributed to its superior 10-year trailing average total return, which is a very healthy 10.4%.

What's the score?
To help me pinpoint suitable investments, I like to score companies on key financial metrics that highlight the characteristics I look for in a retirement share. So how does Unilever shape up?

The basics

Year Founded

1930*

Market Cap

63.5 billion pounds

Net Debt

8.4 billion pounds

Dividend Yield

3.4%

*Unilever was formed when several existing companies merged.

Five-year financials

Operating Margin

14.8%

Interest Cover

12.9 times

EPS Growth

15.7%

Dividend Growth

7.4%

Dividend Cover

2.1 times

Source: Morningstar, Digital Look, Unilever.

Here's how I've scored Unilever on each of these criteria:

Criteria

Comment

Score (out of 5)

Longevity

A long, successful history.

5

Performance vs. FTSE

FTSE-beating performance over the last decade.

5

Financial Strength

Relatively high gearing is mitigated by strong, stable profit margins and good interest cover.

4

EPS Growth

Attractive EPS growth should sustain future dividend increases.

3

Dividend Growth

Unilever loses a point for cutting its dividends this year. Its yield is also below the FTSE average, although the potential for further growth compensates for this to some extent.

3

 

 

Total: 20/25

A score of 20 out of 25 suggests that Unilever could be a good candidate for a retirement fund portfolio. Its huge range of consumer brands and emerging-market footprint mean that demand and growth opportunities for its products should remain strong for years to come, even in adverse economic conditions.

Expert selections
If you'd like more retirement share ideas, then a good way of identifying great dividend-paying shares is to study the choices of successful professional investors. One of the most successful income investors currently working in the City is fund manager Neil Woodford, who manages more money for private investors than any other City manager. Neil Woodford's dividend stock picks have outperformed the wider index by a staggering 305% over the last 15 years.

You can learn about Neil Woodford's top holdings and how he generates such fantastic profits in this free Motley Fool report. Many of Mr. Woodford's choices look like excellent retirement shares to me, and the report explains how he chose some of his biggest holdings.

This report is completely free, and I strongly recommend you download"8 Shares Held By Britain's Super Investor" today, as it is available for a limited time only.

Warren Buffett buys British! The legendary investor has recently topped up on his favorite U.K. blue chip. Discover what he bought -- and the price he paid -- within our latest free report!

Further investment opportunities:

The article Is Unilever the Ultimate Retirement Share? originally appeared on Fool.com.

Roland owns shares in Unilever.Motley Fool newsletter serviceshave recommended buying shares of Unilever. The Motley Fool has adisclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.

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