Recent Buy

buyDecember ended up a lot busier than usual, as well as a lot busier than I had planned. I was quite content with finishing up the year with the initiation of a position in Walt Disney Co. (DIS). Of course, then Mr. Market continued his depressive mood about the future of energy, which allowed me to add to my equity stake in ONEOK, Inc. (OKE).

That was going to be it.

Until it wasn’t.

After the elimination of key executives and a credit downgrade (both of which came after numerous bad omens), I had to listen to my gut and sell out of American Realty Capital Properties, Inc. (ARCP). It’s no call on the firm’s direction or future, but rather an acknowledgement of my risk tolerance and lack of desire to speculate. The REIT has since completely eliminated the dividend, which means this is the second time now I’ve sold right before a dividend cut/elimination. I’m no fortune teller, but one has to follow the fundamentals.

This freed up a lot of capital for me; capital I neither wanted nor planned for. So I took a look across my portfolio and watch list for the best possible opportunities for this capital. I deployed a good chunk of it when I averaged down one last time on BHP Billiton PLC (BBL). The remainder of the capital was deployed as discussed below.

I purchased 40 shares of Unilever PLC (UL) on 12/17/14 for $40.14 per share.

Overview

Founded in 1930, Unilever Plc is a global manufacturer and supplier of consumer products. They sell their products in over 190 countries.

The company operates in four segments: Personal Care (36% of fiscal year 2013 sales); Foods (27%); Refreshment (19%); and Home Care (18%).

They further operate in three geographical product areas: Asia, AMET (Africa, Middle East, Turkey), RUB (Russia, Ukraine, Belarus) (40% of FY 2013 sales); The Americas (33%); and Europe (27%). Emerging markets comprise 57% of UL’s business.

Unilever sports 14 €1 billion brands, among a portfolio of more than 400 brands. Some of their most popular brands include: Axe, Ben & Jerry’s, Breyers, Country Crock, Dove, Hellman’s, Klondike, Knorr, Lipton, Magnum, St. Ives, Surf, and Vaseline.

It’s important to note that Unilever was founded in 1930 following a business merger between Naamlooze Vennootschap Margarine Unie of the Netherlands and Lever Brothers Limited of the UK. As a result, two controlling companies were set up – Unilever N.V. and Unilever PLC. They operate effectively as a single economic entity. Both the Dutch and UK companies offer ADR shares that trade on the New York Stock Exchange, and both stocks represent equal ownership in Unilever. This article will be referencing the (UL) shares, which are the ADR shares of London-listed Unilever Plc. These shares do not have any foreign dividend tax withholding due to a tax treaty between the US and the UK. Unilever N.V. is listed in Amsterdam, and its ADR shares trade on the NYSE under (UN).

Conviction

I’ve discussed this a lot lately, but if I’m willing to invest in a company, then I’m more than likely willing to continue investing, assuming capital, valuation, and portfolio weights all allow. It’s important to have conviction in a stock, which means any weakness in pricing to the downside is nothing more than an opportunity. Not having conviction means volatility is scary, when volatility should actually be welcomed.

I mentioned when I published my second purchase of Unilever shares that I’d like to get this position up to 100 shares over the near term, and this transaction allowed just that.

Of course diversification is also important, as having conviction doesn’t trump bad business decisions or deteriorating fundamentals. I think the recent problems with ARCP highlight how important it is to diversify your portfolio. Even though I took my biggest loss ever on that stock in regards to the percentage, the fact that it was a small part of my portfolio meant the realized capital loss was rather modest in absolute terms.

Nothing has really changed for Unilever since I initiated a stake in the company back in October (I reviewed all of the fundamentals and qualitative aspects in that article). They continue to shuffle the product portfolio a bit as they pick up personal care products brands – UL just picked up Camay and Zest from Procter & Gamble Co. (PG). Other than that, this is a long-term investment, which means daily, monthly, or even possibly yearly changes won’t really make much of a difference for me, as long as the long-term fundamentals remain intact.

This remains just a powerhouse of a company. More than 2 billion consumers use a Unilever product every single day, according to the company.  And they sport the #1 or #2 market share in a number of key markets across most products they offer.

The stock yields 3.57% here, which is very attractive in comparison to many other stocks in this sector. It appears to me that a defensive consumer stock with that kind of yield in a low-rate environment is a great opportunity.

Risks

UL remains a low-risk investment, in my view. The demand for many of their personal care, home care, and food products should remain relatively unchanged through economic cycles, meaning that it’s about as recession-proof as it gets. However, competition in the product lines UL competes in is strong, which can weigh on pricing and shelf space. In addition, input costs can vary, which can affect financial results. Finally, like any global company, they face currency exchange rate fluctuations, which can short-term headwinds or tailwinds.

Valuation

Shares carry a P/E ratio of 18.32 here, which is in line with its five-year average. In addition, that’s below the broader market’s P/E ratio.

I valued shares using a dividend discount model analysis with a 10% discount rate and a 6.5% long-term growth rate. That growth rate appears to be rather conservative, as it’s below the rate at which UL has grown dividends and earnings per share over the last 10 years. The DDM analysis gives me a fair value of $43.66. That means I received a margin of safety near 9% on a conservative valuation model, which is just fine by me.

Conclusion

There’s really not much to dislike about Unilever here. You’ve got established, diversified, well-known, global brands spread out across products that people really can’t do without on a day-to-day basis. No matter what happens with the global economy, it’s unlikely people are going to stop buying their trusted soap brand or the margarine they use for dinner. Their exposure to emerging markets will be a huge tailwind at some point in the future, in my opinion.

The valuation appears at least fair, with a yield that is extremely attractive. I’m more than happy to now own 100 shares in this global consumer products giant. I plan to be a Unilever shareholder for decades to come.

This purchase adds $57.39 to my annual dividend income, based on the current $0.3587 quarterly dividend per share (after the $0.005 ADR fee).

I’m going to include current analyst valuation opinions below, as I use these to concentrate my reasonable valuation estimate:

Morningstar rates UL as a 3/5 star value, with a fair value estimate of $44.00.

S&P Capital IQ rates UL as a 2/5 star sell, with a 12-month target price of $35.00.

I’ll update my Freedom Fund in early January to reflect this recent purchase.

Full Disclosure: Long DIS, OKE, BBL, UL, and PG.

What is your opinion on Unilever right now? Think this an attractively valued defensive investment? Why or why not? 

Thanks for reading.

Photo Credit: Stuart Miles/FreeDigitalPhotos.net

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96 Comments

  1. UL is a super solid purchase, I really like this company. It also adds instant diversification to your portfolio. Any company that is a staple in kitchens and bathrooms worldwide is a very safe bet. Like you I turned my ARCP blunder from bad to good with UL and KO, two must haves in a dividend growth portfolio. Also there isn’t much volatility with unilever, there aren’t many outside variables that could un expectedly cause problems. I am curious as to what’s on your watch list for the first of the year? Thanks for letting me contribute!

  2. Smart moves to finish the year. I’d guess that a decade or two from now you will be glad you added to BBL and UL with those funds instead of letting the funds sit in ARCP. Probably sleep better too!

  3. Nothing to complain about with this purchase. I’ll likely continue to add UL over the coming year in my Loyal3 account. Nice way to DRIP in at no cost and pick up a stellar, core DG position.

    Hope you had a great holiday!

  4. Pat,

    Nice job there with redeploying that capital. Who knows what’s going to happen with ARCP, but I have a pretty good idea as to where UL and KO are going. 🙂

    I think I’m going to release an article with a few stocks that I’d like to add to the portfolio at some point next year, depending on capital and valuations. There’s a few holes in the portfolio that I’m still trying to address on an ongoing basis.

    Thanks for stopping by!

    Best regards.

  5. EWB,

    The fee is factored into the yield. UL charges an annual fee of $0.02 per share for the costs of administering the ADR program. That breaks out to $0.005 per quarter. So that comes off of the dividend. For instance, UL declared a $0.3637 dividend per ADR for Q3, but $0.3587 per share was paid as a dividend.

    I hope that helps!

    Take care.

  6. W2R,

    That’s good stuff right there. Consistently averaging into a high-quality stock like UL is a no-brainer. 🙂

    I had a great holiday, though I’ve been sick for the last few days. Came down with a nasty case of bronchitis. But I’m still looking forward to celebrating the New Year and getting 2015 started off right!

    Thanks for stopping by. Hope all is well.

    Best wishes!

  7. DC,

    I certainly hope you’re right there. I can’t imagine how BBL or UL isn’t making a lot more money and paying out much larger dividends over the next 10 to 20 years. ARCP, on the other hand, could go anywhere. But I’m definitely sleeping better, which certainly has a lot of value. 🙂

    Cheers!

  8. Dividend Mantra,

    Another great buy for you with Unilever..

    ARCP eliminated their distribution. I think the people responsible should go to jail for the problems they caused for their investors. The ARCP situation is the worse financial mess of this nature since the enron and worldcom problems.

  9. FFD,

    Thanks! I think UL has a lot to like.

    As far as Morningstar, you can use the service at a local library as long as they have a membership. There are also more creative ways around premium memberships like that.

    Best regards!

  10. IP,

    Thank you! UL isn’t extremely cheap here, but I think it’s at least fairly priced. And one can do much worse than a fairly priced stock in the consumer space with a yield that high.

    Yeah, ARCP is a mess. It’s a real shame because I think that the REIT could have made a lot of people a lot of money. This is another case where investors were discussing the possibility of a dividend cut still leading to an attractive yield, yet failed to miss the odds of an eliminated dividend. Furthermore, a dividend cut that still offers an attractive yield after a cratering of the stock is not an intelligent way to invest or think about stocks. SDRL investors were treated the same way recently. Unfortunate. We’ll see what comes of the accounting scandal, but I’ll not be watching intently.

    Best wishes.

  11. Long UL with over 575 shares. I will add more if it drops below my cost which is around $38. My last purchase was over week ago in XOM, CVX, BP, OKE and BBL in month of December. I think I am done for a year.

    Lets see what opportunities next year bring. With market so high I am in no rush to buy. I will only buy during 5% or more deep in general market.

  12. Technically, ARCP just delayed the dividend. I don’t think a REIT, being a pass-thru, can eliminate it completely. But still, announcing that the day after Christmas? This company get shadier every week. I just got out of it on Monday.

    UL is a fair price here. It’s still sitting at about where I bought in a couple months ago, so I may add some more next month unless something else jumps out at me.

  13. Hi, DM,

    Good buy. I am also following it but I am interested in the UK shares, to diversify currency. In fact, yesterday I review Unilever on my blog and I put my eyes on it at a price of 10% below the current one.

    Best wishes,
    CZD.

  14. It doesn’t get more defensive than UL. I have many big name consumer staples in my portfolio (CL, CLX, KMB, PG, etc.) and love the relatively low volatility and stability they provide. I added UL a few months ago to my portfolio. Anywhere around $40+/- is a fair price for this great business. I’m looking to add more to my position as well. December has been the busiest month for you since I have been following. Thanks for sharing.

  15. You can’t do much wrong with UL, Jason. It’ a solid managed company and they will send you a check like clockwork. I initiated a position mid-November and I’m looking to average down as soon as the opportunity presents itself.
    By accident I stumbled onto FLO a few days ago. I’m starting to investigate a bit further and so far it looks like one to put on my watch list. It made me yawn a few times, which is usually a good sign :-). I was wondering, is FLO on your watch list or do you have otherwise an opinion on it?

    Enjoy the weekend.

  16. Unilever is a good widow and orphan stock. I got 108 shares of it myself. It is fairly valued, and rarely gets to undervalued territory except in a major recession. I think Warren Buffett is right when he says that it is better to buy a great company at a fair price, than to buy a fair company at a great price. I admit I have not fully made the conversion myself, and am still hunting for the cigar butts in the classic Graham style.

  17. I have a question. I’m trying to learn how to value companies beyond the “buy at P/E ratios below 20” and I’m currently trying to learn the Dividend Discount Model. My question is where do you get the numbers that you are plugging into the equation (I assume you’re using the 2 stage DDM http://www.passive-income-pursuit.com/2013/04/stock-valuation-method-dividend.html)? I can understand the growth rate (based on the past dividend growth rate), but discount rate and other numbers? Where are these figures coming from? Every time I read something about the DDM, it seems a lot of these numbers are being pulled from thin air.

  18. I held both ARCP and SDRL, and the reasons for the elimination of dividends were completely different. SDRL took on a lot of leveraged debt to build the newest fleet of off shore drilling rigs, and would have been fine if oil prices had stayed high. You might argue that their management should have been more savvy about the direction that oil prices were going based on an over supply situation, but this is not the same as ARCP’s apparently criminal cover up of accounting errors. Just saying.

  19. Jason,
    I have held UL for a couple of years now. I bought it after going through the house to see what products we used and who made them. We use a lot of UL items like shampoo, soap, ice cream (have you tried Magnum bars yet?), etc. No looking back. It’s kind of like owning a European PG. I see both of them as forever stocks (but you never know and you have to keep monitoring just in case).
    Hope you are having a great holiday season!
    KeithX

  20. AJ,

    Nice position there in UL! 🙂

    You really loaded up on energy. I was happy to buy more OKE at what I thought was a ridiculous price. Same with BBL. I’m hoping for continued volatility in energy, which I’m confident will materialize.

    I hear you on not being in a rush. I don’t think there are a lot of steals out there, but I’m also no market timer. Consistent purchases and reinvesting dividends has been kind to me.

    Thanks for dropping by!

    Best regards.

  21. Justin,

    Right. Technically a delay, but we also don’t know when the dividend will be reinstated and how much it will be. In the meanwhile, it’s really an elimination.

    Agreed on UL. More or less fairly valued, which isn’t bad for a high-quality company. I’m happy to load up here at ~$40. 🙂

    Cheers!

  22. DFD,

    There doesn’t appear to be any significant catalyst on the horizon which would propel the share price upward. So I think you’ll get your chance. 🙂

    Take care!

  23. DivHut,

    I hear you there. I’m a shareholder in quite a few similar companies, and they provide a nice ballast when things are going crazy. I enjoy volatility as much as the next asset accumulator, but that’s in regard to stock prices, not business operations.

    December was indeed busy for me. Neither planned for nor desired. However, I expect things will be a lot calmer at least until taxes are done, as I’m low on cash and expect to owe a healthy sum in the spring. Things may pick up again after that, depending on capital.

    Thanks for dropping by!

    Best wishes.

  24. Jos,

    I looked at FLO years ago. I can’t really remember why I didn’t invest in it. If I’m correct, the yield was too low for me at the time. I put it on my watch list some time ago, but haven’t really taken another look since. Looks like it has some pretty solid fundamentals, though. And it’s not like people are going to stop eating bread anytime soon. 🙂

    Best regards.

  25. JTF,

    I’m with Buffett all the way on that one. Most of my portfolio is comprised of such companies, though I do stray into the deep value/questionable quality territory from time to time. Overall, I’m interested less and less in such activities as time goes on. I hope to continue bolstering the portfolio with quality from here on out.

    Glad to be a fellow shareholder! 🙂

    Best wishes.

  26. Joey,

    I’m not sure what “other numbers” you’re speaking of with the dividend discount model analysis. You only need a discount rate and a dividend growth rate. Just two numbers. You say you understand the dividend growth rate. The discount rate is your hurdle rate, or desired rate of return. I use 10%, as that’s a very comfortable rate of return and above the long-term broader stock market’s average. That also attempts to build in a margin of safety all by itself, as achieving an 8% or 9% total return would still be desirable. So you have a potential margin of safety with your discount rate, the growth rate, and finally the purchase price.

    I hope that helps!

    Cheers.

  27. KeithX,

    Right. I wasn’t saying that both firms cut their respective dividends for the same reason, though SDRL’s FCF has been unattractive for quite some time now (that speaks to the fundamentals comment I made in the article). Rather, I was only referencing the unfortunate discussion among investors where they don’t mind a dividend cut because the “yield will still be high”. Yeah, the yield is still high because the stock price has fallen dramatically. That’s obviously not a great way to think about stocks, yield, or returns. And it also discounts the probability of a dividend elimination altogether. You might not do bad buying in after the fact, but you’d be speculating at that point.

    Cheers!

  28. KeithX,

    Definitely. I would agree it’s like a European version of PG, though smaller and with greater exposure to foods and beverages. It also sports a lower valuation and higher yield, which is nice. All in all, I think UL makes a lot of sense here.

    I tried Magnum maybe a year or so ago. They were on sale at the local Walmart, so we picked up a small box. Good stuff. Very good. Too good. My wallet would prefer I forget the experience at the protest of my taste buds. 🙂

    Have a great rest of your weekend!

    Best wishes.

  29. DM,

    Nice job achieving your goal of 100 shares into Uniliver and making, possibly, the last purchase of 2014! Great addition to your dividend income as well. Similar to what I’ve written about – DM, have you ever calculated your potential overall dividend growth rate based on the weighted average each stock produces in income for you and based on either the most recent year, 3 year or 5 year growth rate? It’s pretty interesting and if you haven’t already – you’d be able to use that information for further purchases and potential expectations.

    Hope you had a great Christmas DM, talk soon and congrats!

    -Lanny

  30. Hi Jason

    Can’t really say anything against your Unilever purchase as I am a holder, and considering adding to my position as I think they are a great buy at a dividend yield of 3.4%.

    My current holdings which were bought at prices lower than they are today have contributed to my dividend income for 2014, which I have just posted about on my blog, and I have to say this year has been satisfying in terms of increase from last year (although not as good as you achieve with your greater addition of funds than me).

    I hope you enjoyed your Christmas in Florida, and, if I don’t get the opportunity later this week, would like to wish you a Happy New Year for 2015.

    Best Wishes
    FI UK

  31. Hi Jason,

    I’m eyeing UL since some time and at $40.14, it is a good buy. I currently hold PG and both are great companies. UL is almost 10% lower than its 52 high and looks like a great time to buy now.

    However, I find most of the dividend paying companies trading at their highest level ever or close to it and the graph is exponential and at the top of bell curve. So, I’ve this nagging feeling that we might be due for a significant correction sometime next year or after, but, we are in it for long term and do not care that much.

    Hope you are enjoying your vacation with a solid buy 🙂 Best.

  32. Nice buy. I’ve got some cash coming up in January and I’m planning to add some more to my Unilever position as well, plus some increases to my PM and RDSB positions.

  33. Lanny,

    Thanks. Yeah, this will definitely be the last purchase of 2014. Although I’ve got plenty of ideas still, the cash is exhausted. First world problems. 🙂

    I’ve never calculated the dividend growth rate across the portfolio like that, though I do keep a close eye on dividend growth from stock to stock. Some have been tremendous this year, like TGT, V, DIS, and IBM. Others haven’t, as GE and T both had somewhat low raises (T was expected). However, when I calculate some of my goals out over the long term and even year to year, I typically aim for ~7% dividend growth. Just looking at how most of the stocks performed this year – especially my larger positions – I bet I’m pretty close to that.

    Had a great Christmas over here. I hope you had a wonderful celebration up in Ohio. 🙂

    Cheers!

  34. FI UK,

    Looks like you had a great 2014 over there, from what I can see. And it appears you’re a lot closer to financial independence than me, which is fantastic. Keep up the great work!

    Happy to be a fellow shareholder with you in UL. Though this is probably my last addition to UL for a bit, I’d be happy to eventually double the stake to 200 shares.

    Happy Holidays over there. Hope you’re spending a lot of quality time with friends and family. And Happy New Year! 🙂

    Best wishes.

  35. PIM,

    I’m with you on UL and PG. Both great companies, though I think UL is a much better value right now than PG. It’ll be interesting to see how the changes work over at PG. I hope the renewed focus on prime brands reinvigorates the company.

    The broader stock market is at an all-time high. Thus, most companies within the market are also trading at all-time highs. However, stocks will always break through highs over the course of one’s investment career if they’re at it long enough. The DJIA was at 5,000 points not all that long ago. I remember Peter Lynch said the stock market doubles roughly every ten years, which seems fairly accurate. Worrying about all-time highs won’t get you anywhere, because those will occur fairly often over the course of many years.

    Thanks for dropping by. Hope you’re having a great weekend!

    Take care.

  36. Thomas,

    Nice! I think UL is a great purchase here, and very defensive. Shouldn’t rock the boat too much.

    I like PM quite a bit as well. If it wasn’t already my largest position, I’d be interested in picking up shares for sure. Tough to find that kind of yield and growth potential all in one stock.

    Thanks for dropping by!

    Cheers.

  37. I agree with your purchase. We grew up using UL products and still do. I have 25 shares and would like to own some more. I guess I will still buythem at the current price. Even if they are fairly valued..the dividend alone will help us turn in a gain.

  38. Amit,

    I’m with you. I use a few Unilever products, including their Dove soap. Great stuff. Happy to profit from the use of their products. 🙂

    Glad to be a fellow shareholder!

    Thanks for dropping by.

    Take care.

  39. Hey Jason.

    Good buy here on a solid company! I really do not think you can go wrong with UL.

    Happy Holidays from Maui.

    Ray

  40. Hi DM,

    Solid buy to end 2014. I also have some stocks from unilever. My last stock purchase for 2014 will be tommorow.

    Have a good newyears eve and a good 2015.

    Cheers,
    G

  41. UL is and will remain one of my top 3 holdings. As you demonstrate, Jason, the firm is conservatively valued. I like their collection of billion dollar brands with a lot of equity and relative pricing power built over the years. That gives Unilever quite a moat. I am also impressed by their presence in emerging market with market dominance over multiple categories in India, Brazil, Pakistan, Turkey, China…..Almost 60% of their revenue is from emerging markets. While this has been a drag over the last 3 quarters, I believe it will have a considerable payoff over the next 20 years…What more, they are the world’s leader in ice creams and Ice creams are delicious

  42. Uh oh ! Half of my comment got cut. 🙂
    The rest went something like this….Great dividend 3.5%+ / shareholder friendly leadership and the benefits of diversifying your portfolio with a non-us based multinational….
    Conclusion was: all with you on this Jason ! Keep up your amazing dedication and thanks for your awesome blog !!!!

    LTI

  43. DM,

    Nice! Always having a few ideas on the back pocket, I definitely am on board with that.

    Somewhere around the 7% range seems almost spot on – as I averaged out my 29 individual stocks i own in my individual portfolio – that’s exactly where mine came out to be.

    Ohio wasn’t too bad actually, sad we didn’t get snow but happy we didn’t get snow? haha.. it was 55 degrees yesterday and I was able to run/walk a combination of 7 miles, which is unheard of at this time, and a few of my friends and relatives went… GOLFING on December 27th.. insane! Glad the weather and Florida living has been treating you well – talk soon!

    -Lanny

  44. Hi Jason and greetings from Finland!

    Interesting choice of purchase this time around. Been looking into Unilever for some time now and been waiting for someone to motivate me to proceed with actually investing in the company. I think your thorough analysis on the fundamentals are right on and I’m convinced more than ever that this really poses upsides on the long-term.

    Have you looked into investing in any of the companies in the northern parts of Eupore? We have quite successful companies, such as KONE, Nordea and Hennes & Mauritz that have global exposure and have been raising dividends constantly and are to do so in the years to come.

    Keep up the good work!

  45. Hi Jason,

    I always wanted to ask you this question but I never did. But now I want to ask and not to hold back.

    I am curious to know your top five stocks. You have given $500K on March 6 2009 to invest in only five stocks for next 25 years. Everything is on the line to do your best for 25 years what would you pick?

  46. Ray,

    Maui? Very nice! Never been to Hawaii, but would love to go sometime. I thought about moving to Hawaii before I decided on Florida. The taxes are a lot higher out there, as is the cost of living. I’m sure it’s beautiful, though! 🙂

    UL is a solid, defensive pick. I’m always trying to balance risk, so stocks like this always have a place in my portfolio.

    Appreciate all the support. Enjoy yourself out there.

    Cheers!

  47. UTMT,

    Thanks. Not much to dislike here. Solid brands, fair valuation, attractive yield, great management, excellent and lengthy operational history, and global exposure. 🙂

    Hope you’re having a great weekend over there!

    Best regards.

  48. Geblin,

    You’ve got one last purchase left in the tank, huh? That’s a great way to finish the year strong. 🙂

    Wishing you a great New Year celebration as well. I’m optimistic for 2015. Let’s make it a fantastic year!

    Best wishes.

  49. LTI,

    Agreed. Everyone is down on emerging markets right now, but everyone was cheering for emerging markets exposure just a year or two ago. I’m confident that the moves they’ve been making in this area will pay off big over the long haul. They have huge exposure to what will surely be growth markets looking out over the long haul. And the products they provide are ubiquitous and in some cases necessary. I have no concerns about Unilever. 🙂

    And they definitely make some delicious ice cream. I like their purchase of Talenti earlier in the year as well. I’ve seen that brand continue to grow its shelf space over the last couple of years. They dominate when it comes to ice cream!

    Thanks for dropping by. Glad to be a fellow long-erm shareholder.

    Take care!

  50. Sami,

    Thanks for stopping by from Finland! 🙂

    I definitely think Unilever is a high-quality company. I would have no problems recommending this stock to anyone, as my personal investment in the company should show. I don’t think it’s going to offer explosive growth, but the company (and its stock) should grow at a rather steady pace over the long term.

    There are quite a few European companies in my portfolio, though I’m mainly sticking to those domiciled in the UK due to the tax treaty. There are some other companies there that I’m leaving on the table, but between the US, Canada, and the UK I have well over 100 stocks to choose from, which is really more than enough already. It’s just picking the low-hanging fruit.

    I hope your journey over there in Finland is treating you well thus far!

    Best regards.

  51. AJ,

    Man, that’s a tough question. I’d hate to be in the position to only have the crack at five.

    If I had to narrow it down like that, I think that my top five holdings would be a great start. I’d probably pick JNJ, PM, NSC, and PEP. KMI is in my top five, but I don’t think I’d ride it out with a 20% weighting. I’d probably substitute XOM or CVX there. So JNJ, PM, NSC, PEP, and XOM. I’d feel comfortable with a 20% weighting to all five of those stocks, if I absolutely had to. All five companies should be around for at least another 20 or 30 years.

    What would your top five be?

    Cheers!

  52. Hello DM,

    I’m new to the blog, So I was wondering if you could show me the math behind the DDM to get $43.66. Is there any spreadsheet or quick calculator online that would figure this out for me for any stock?

    sorry, if this is a newbie question, but its coming from a newbie investor. I mainly do index funds but maybe in 2015, i want to mix it up with some dividend paying stocks.

    Happy New Year

  53. Hi Jason,

    My top five non-diversify selections are without any fear, zero concern, without thinking or blinking twice are in order: KO, PG, PEP, JNJ, GIS. This was very easy for me.

    But answering the actual question what would I buy on March 2009 I have to pick WFC, GE, MO, KO, PG.
    I have to include WFC which was trading at $8, GE which was trading at $6 and MO which was trading at $10 and I actually bought them all around that price. The Yield on Cost is crazy and I have to include KO and PG. WB was once asked where would he feel comfortable to store his entire wealth and he said he can sleep comfortable by putting is entire wealth in KO and PG.

    In my real life portfolio my top five holdings are KO, PG, PEP, GIS, PM. My only regret here is not putting enough money in JNJ share when I had the money. I wanted to put more on PEP but I put every penny I had at that time when shares were cheap.

    If I have to manage someone else money (say my other family members) then I have to be more diversify for year on year performance so that they keep the money in it for long time and in that case my top five are KO, PG, JNJ, XOM, WFC.

    I hope I reply to your satisfaction. I would like to trade this type of thoughts often. Thank you.

    AJ

  54. Vince,

    No newbie questions around here. Don’t ever be afraid to ask questions. We’re all here to share and learn.

    There are a number of spreadsheets you can use for the DDM. Or you can do it freehand. The numbers should all work out about the same.

    The particular spreadsheet I use can be found here:

    http://dividendmonk.com/dividend-book/

    I picked it up years ago and I’ve been using it ever since.

    Hope that helps! 🙂

    Take care.

  55. AJ,

    Sounds like a great list to me. Obviously, there’s no right or wrong answer here. Whatever really works for you and your goals. I think PG, WFC, and KO could all be substituted in there. WFC and KO are also some of my largest investments.

    The good news is that we don’t have to stick to just five companies, which works out nicely since there are a whole bunch of high-quality companies that routinely pay and increase dividends. 🙂

    Thanks for sharing!

    Cheers.

  56. hi Jason,

    is there an overview what these ADR rates are for different companies? Reason I want to know is that for UK stocks, I want to understand the total of cost of purchase. Example:
    For UK stocks the UK government charges a financial tax which is relatively high (to transaction sizes of let’s say USD 2000 per transaction). This tax comes on top of my normal broker fees. These broker fees are really low for US stocks. So, for example for BHP, I wonder whether I wouldn’t be better off buying the US ADR (BBL) like you did? Or is this already included in the share price of BBL? What do you know about this?

    Philip

  57. I closed out my position with ARCP about 5 minutes ago myself. The dividend elimination/delay (or whatever you like to call it) was the last straw in a company that I had already been very uncomfortable with.

    UL is as solid as it gets, on the other hand. Can’t imagine a world without their products, and they’ve got exposure to emerging markets as well. And I like their ice cream very much 🙂

  58. Philip,

    Not quite sure I understand your question. If you’re asking about comparing the stocks listed on the LSE to ADRs here in the US, I don’t have a lot of information for you because I don’t live in the UK and thus have not done any research regarding that subject. So I’m just not familiar with your system over there in the UK.

    I traditionally stick to UK-domiciled ADRs because of the tax treaty, which I discussed here:

    https://www.dividendmantra.com/2014/11/considering-foreign-domiciled-dividend-growth-stocks/

    We sometimes pay a small fee for the management of ADRs, which comes off of the dividend. But we’re talking a penny or so, which is pretty inconsequential in the grand scheme of things.

    For questions related to UK taxation, you may want to get in touch with Financial Independence UK, as he blogs out of the UK:

    http://www.financialindependenceuk.com/

    Or Huw:

    http://financiallyfreebyforty.blogspot.co.uk/

    Hope that helps!

    Best regards.

  59. Seraph,

    Unfortunate there with ARCP. The dividend elimination would have been the last straw for me as well. There is obviously more going on than just a slight adjustment to AFFO, regardless of what they’ve been saying so as to control the damage. Either way, best to just move on if you’re a conservative investor.

    UL seems about as opposite as one can get to ARCP, which is fine by me. My dividend income was reduced quite a bit, but I can sleep a lot better now. And sleep is priceless. 🙂

    Maybe I should celebrate that sleep with a quart of Ben & Jerry’s!

    Thanks for dropping by.

    Cheers.

  60. hi Jason,

    Thanks and sorry for not being more clear on my question on UK listed shares and the corresponding ADRs listed in the US. It was not about the dividend tax, but about the Stamp Duty Reserve Tax you pay when you buy UK shares. It’s 0.5%, imposed by UK government (see http://www.gov.uk/tax-buy-shares/overview)

    I was wondering whether you know if you don’t have to pay this tax if you buy the ADR counterpart of it? If so, that would save me 0.5% on the cost basis.

    Did not find it on the links provided.

    thanks again
    Philip

  61. Does UL pay an ordinary or qualified dividend as each has different tax considerations? US corporations pay qualified dividends and some but not all ADRs. According to something I found from 2008 it would seem they are ordinary dividends, meaning taxed at a likely higher rate, which in turn would reduce the yield realized.

    “If you are a US person, the dividend up to the amount of our earnings and profits for United States Federal income tax purposes will be ordinary dividend income. Dividends received by an individual during taxable years before 2011 will be taxed at a maximum rate of 15%, provided the individual has held the shares for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date, that PLC is a qualified foreign corporation and certain other conditions are satisfied. PLC is a qualified foreign corporation for this purpose. Dividends received by an individual for taxable years after 2010 will be subject to tax at ordinary income rates. The dividend is not eligible for the dividends received deduction allowable to corporations. The dividend is foreign source income for US foreign tax credit purposes.”

  62. Philip,

    That link you provided is from the UK government. While that may apply to UK residents, it has nothing to do with US investors. I pay no such fees when I buy ADRs. I’m honestly not sure how that would work if I were to purchase shares on the LSE, but I always buy shares on US exchanges.

    I honestly cannot answer whether or not that fee would be levied upon you if you buy ADR shares from over the in UK. Again, I’m not a UK resident so I’ve never done any due diligence on taxation and fees as it pertains to UK residents.

    Cheers!

  63. Barry,

    As far as I’m aware, all ADRs that aren’t structured in a different corporate format (REITs, etc.) pay qualified dividends.

    Wikipedia has a nice article on qualified dividends:

    http://en.wikipedia.org/wiki/Qualified_dividend

    “In order to be taxed at the qualified dividend rate, the dividend must:

    be paid after December 31, 2002,
    be paid by a U.S. corporation, by a corporation incorporated in a U.S. possession, by a foreign corporation located in a country that is eligible for benefits under a U.S. tax treaty that meets certain criteria, or on a foreign corporation’s stock that can be readily traded on an established U.S. stock market (e.g., an American Depositary Receipt or ADR), and
    meet holding period requirements: You must have held the stock for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date. The ex-dividend date is the first date following the declaration of a dividend on which the buyer of a stock is not entitled to receive the next dividend payment. For calculation purposes, the number of days of ownership includes the day of disposition but not the day of acquisition. Exception for preferred stock. In the case of preferred stock, you must have held the stock more than 90 days during the 181-day period that begins 90 days before the ex-dividend date if the dividends are due to periods totaling more than 366 days.”

    I hope that helps! 🙂

    Best regards.

  64. Unilever is a good choice! Great product/brand portfolio, High ROE, ROA, low debt, high dividend yield. Great business. Stocks of Unilever are also listed on the Amsterdam Stock Exchange (AEX) in the Netherlands, because it’s a semi-Dutch company.

    Because i’m Dutch, i bought some shares on Februari 14th @ EUR 27.72. Unilever is a must have in a dividendportfolio when you’re Dutch. Since then the stock performed well. Stocks are now trading @ EUR 32.79 a share and I received 3 x EUR 0.285 in cash dividends! Rock hard guilders is what I want to see!

    Unilever is a far more profitable and well-postioned company like it’s main rival Procter and Gamble. Recently Unilever bought some soap brands as well as a soap manufacturing company in Mexico from PG.

    Keep up the divdends, DM! Love your portfolio!

  65. DD,

    Glad to be a fellow shareholder. I imagine this one of the must-own stocks over there in the Netherlands. It’s just a great company. Not much to really dislike here. And that’s even among some of the venerable options we have over here in the US, including PG. I think PG is another great option, and they might be finally getting their act together a bit. Either way, I think both companies will be around and more profitable 20 years from now. And they’ll both also likely be paying larger dividends. That’s what it’s really all about. 🙂

    Thanks for the support. Appreciate you stopping by!

    Best regards.

  66. To all those who sold their ARCP shares:

    Activist investment firm Corvex Management LP reported a 7.1 percent stake in American Realty Capital Properties Inc. (ARCP:US), the U.S. real estate investment trust that has plunged since disclosing accounting errors two months ago.

    Corvex, run by former Carl Icahn protege Keith Meister, has accumulated about 64.7 million shares, including stock underlying call options, the firm said today in a regulatory filing. The New York-based company paid about $71.1 million for the 7.925 million owned shares and $158.1 million for the options, according to the filing.

    American Realty Capital Properties, or ARCP, has fallen (ARCP:US) 32 percent since revealing Oct. 29 that it had accounting errors that were intentionally concealed, leading to the resignation of its chief financial and chief accounting officers. Three of the company’s other top executives (ARCP:US) resigned two weeks ago, and the REIT is reviewing its capital structure and dividend policy.

    VIDEO: Corvex Takes Stake in American Realty
    Corvex said today that it has had talks with ARCP’s board to discuss adding a representative and ways to boost value.

    “We commend the board’s decision to retain qualified advisors in seeking to promptly resolve past issues and position the company to look to the future rather than focusing on the past,” Corvex said. “This is a time of transition and a unique opportunity for a ‘new start’ for the company and its shareholders.”

    SO glad I hung in there!

  67. Stugats,

    I wish you and other ARCP investors the best with that investment. However, an investment firm buying into ARCP means nothing.

    I remember reading about Bernie Madoff and how he was investigated by the SEC, yet nobody could figure out he was running the largest Ponzi scheme ever. I also remember DLR being hammered not that long ago because some hedge fund manager “expert” thought shares were only worth $20. He was wrong.

    Not saying that Corvex is wrong or that I’m right. Just saying that I’d be careful with assuming that a fund buying into ARCP means everything is okay. Supposed experts get it wrong every day.

    I hope ARCP turns it around. I really do. But it’s definitely a speculative play at this point in time, which isn’t for me.

    Cheers!

  68. chris,

    I think HP is undervalued, potentially vastly so. However, they just recently started paying out a substantial dividend. So I’m not sure how a prolonged drop in oil prices could/would affect their ability to pay that out that dividend. I’ve just never personally been super interested in any drillers due to the extremely competitive/fragmented industry. Hard to really see how any have any competitive advantages over one another.

    Best regards!

  69. I’m holding ARCP for the long term. The news is starting to get better and everyone who wanted to get out for tax losses, etc only has one day left. Stock is up 7.5% today. I’m glad I did not cut and run like a lot of others, but only time will tell if this was the right choice…

  70. Dana,

    Right. Time will tell. I hope it works out. Spec plays like ARCP can turn out fabulously. But it’s the chance that they can also turn out horrendously that allows me to avoid them without regret.

    Best of luck!! 🙂

    Cheers.

  71. Jose,

    Nice buy there! I’m not personally familiar with Ebro, but I don’t see how you can go wrong with a company that has a dominant share in pasta and rice. People aren’t going to stop eating that stuff anytime soon. I have a stake in a small company that produces sauces and meatballs. Looking forward to those saucy dividends for years to come. 🙂

    Happy New Year!

    Cheers.

  72. Jason,

    Great buy. UL is much like PG…I do not think you can go wrong owning it as long as you pick it up at fair value, which I believe you did. UL is one of those staples that is diversified. It will also give you some more international exposure which is good! I may have to pick some up myself in the coming year!

    Take Care,

    Josh

  73. Josh,

    Thanks!

    I agree with you. Stocks like PG and UL are kind of no-brainers, as long as the valuation is at least fair. The low risks and attractive nature of the businesses means that these stocks are sometimes priced at a premium, but I think UL is one of the better values in this sector.

    Would love to have you as a fellow shareholder! 🙂

    Cheers.

  74. DM,

    Nice pickup. Currently watching this name for quite sometime. Will be buying UL, OKE,NOV as my first three stocks for 2015. These picks should start my portfolio off right in the new year. All the best in 2015, keep up the good work!

    J-harr

  75. j-harr,

    Nice. Sounds like very reasonable purchases to me. I’m still aiming to average down on NOV at some point here. The fundamentals are incredible. On one hand, you have falling oil prices. But on the other, the $3 billion buyback will surely be aided by a cheaper stock.

    Take care!

  76. DM,

    Lets not forget the backlogs and their balance sheet! Both look impressive.

    Good luck,

    j-harr

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