Shareholder value looks to being enhanced quickly by consumer products giant Unilever plc (LON:ULVR) which today posted first-quarter results including an as promised 12% hike in its quarterly dividend payment.
The dividend hike was in line with a pledge in the FTSE 100-listed firm’s strategic review outcome, revealed earlier this month, which said shareholders in the Marmite spread to Knor stock cubes firm would be rewarded with a 12% increase in dividend in the coming year as well as a €5bn share buy-back programme.
The strategy review to improve shareholder value was launched at the end of January in the wake of the shock of a failed bid move for the Anglo-Dutch group by US food giant Kraft Heinz Co (NASDAQ:KHC).
READ: Unilever raises quarterly dividend by 12%
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Unilever shares pushed over 1% higher today in reaction to the first-quarter numbers, with the stock having gained over 20% so far in the year-to-date.
AJ Bell’s investment director, Russ Mould pointed out that investors appear to be welcoming the strategic plan outlined by Unilever in response to the surprise takeover approach.
Mould said: “In an environment where doubts still linger over global and corporate profit growth (after an eight-year upturn) and lofty stock market valuations (by historic standards, after an eight-year bull run), dividends may well form a great portion of total shareholder return going forwards.”
The quest for reliable income is still on for many investors
He said added to that are record low interest rates and near-rock bottom government bond yields in the UK, meaning the quest for reliable income is still on for many investors.
However, the investor director, noted that consensus forecasts had already pencilled in a double-digit increase in Unilever’s shareholder pay-out this year - at least in sterling terms – while the prospective yield of 3.2% on the shares for 2017 compares to the 4.2% currently on offer from the FTSE 100 overall.
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Mould also pointed out that, according to consensus forecasts, Unilever is just the 52nd highest-yielding stock in the FTSE 100.
He said: “What the company does have in its favour is dependable cash flow. Although forecast earnings per share only cover the forecast dividend per share by 1.5 times for 2017 – when really a multiple of 2.0 would be ideal – this does compare favourably with the average earnings cover on offer from the ten highest yielding stocks in the FTSE 100, which is uncomfortably skinny at just 1.2 times.”
“In addition,” Mould added, “demand for Unilever’s staple products is likely to be more reliable than oil or metals prices, for example, so its cash flow cover of dividends will also be above the average on offer from the top ten yielding names.”
Unilever forecast to be FTSE 100's 26th biggest payer of dividends in 2017
The investment director noted that Unilever is forecast to be just the 26th biggest payer of dividends in cash terms in 2017 within the FTSE 100, representing less than 1% of the total £80.4bn pay-out forecast by the analysts’ consensus for 2017.
However, Mould added, at least Unilever’s earnings cover is again superior to the average across the ten biggest payers in cash terms, which is just 1.33 times for 2017, according to analysts’ consensus forecasts.
READ: Berenberg thinks Unilever has financial firepower
He concluded that Unilever’s consistent cash flow has enabled it to offer a steady history of dividend growth in euro terms over the last decade, even if movements in sterling prevent the company from joining the elite club of FTSE 100 firms to have raised their dividend each and every year for the last decade.
And, Mould added, historic data suggests that it is “dividend growth, rather than just the fattest yield, which tends to drive the best share price performance and total shareholder returns over time.”