Unilever is hit by COVID-19.
On April 23rd, 2020 Unilever announced its results for the first quarter of 2020. Normally this trading update is accompanied by a dividend raise. So, I was anxiously waiting for these results. But what I read didn’t make me happy. It is understandable, but not what I expected. I didn’t see a dividend raise 😟. What to do with my shares?
One thing is clear: Unilever’s revenue growth is suffering from the corona crisis. Some sales channels (e.g. shops) used by the company to market its products have been closed.
If we take a look at their Trading statement first quarter 2020, we see that the underlying sales growth was 0.0% with 0.2% from volume and negative 0.2% from price. The turnover increased 0.2% (including a positive impact of 0.6% from acquisitions net of disposals and negative impact of 0.4% from currency) to €12.44 billion.
If we look at the figures and we compare them with 2019, it is clear that the COVID-19 Pandemic is hitting Unilever’s numbers. Many shops in Far East were closed during the quarter, with a sharply decline in sales as a result. In the Americas, and to a lesser extent in Europe, the company benefited somewhat from hoarding rage among consumers.
Alan Jope, CEO of Unilever: “COVID-19 is having an unprecedented impact on people and economies worldwide. Unilever has moved at speed to support our multiple stakeholders and maintain our operations through the crisis and prepare for growth in a new normal.
We have been able to maintain the supply of product and we are keeping our factories running through the many unpredictable challenges in local operating environments across our value chain. We are also opening up new capacity where it is most needed, such as in hand hygiene and food…. We take these actions in the knowledge that we enter the crisis with a strong balance sheet and cash position.
Our portfolio, our financial stability and the quality of our leadership teams around the world mean that Unilever is well- positioned during this crisis and for the changing world that will come afterwards. The fundamental drivers of growth continue to be the key principles driving our execution as were main focused on delivering superior long-term financial performance through our sustainable business model.”
Due to the fact that the Corona disease has such an impact on Unilever’s figures, the board of director’s decided to maintain their quarterly dividend is at € 0.4104.
Since 2006, Unilever has a history of annual dividend increases. In 2006, the previous track record of increases was lost due to a one-off special dividend and a reorganization of the capital structure. Before that, the dividend was also increased every year.
Dividend growth over the past 5 years has been 7.56% per year. And with a payout ratio of 43.5%, there is still plenty of room to raise their dividend. That is why I believe that their dividend will undoubtedly be increased again later in the year. I think that the Board of Directors will prevent the dividend-increase track record to be broken. With just a very small raise, the record will not be broke. So, I think, we shouldn’t be surprised if a 1% increase will be announced later this year.
Unilever is under severe pressure from the Corona virus. Their product mix is depending on shops, impulse purchases and sales in the Far East. That is why Unilever has been hit extra hard in the first quarter. Now the situation is slowly getting back to normal in the Far East, the numbers will increase for Unilever. So, I think that the second quarter could improve.
Their dividend will be maintained at the current level, but in my humble opinion Unilever will raise their dividend later this year, just to keep their track record.
What do you think of Unilever and their announcement not to increase their dividend? Is Unilever still a buy? I like to hear from you!
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