The share price performance of fast-moving consumer goods companies Reckitt Benckiser (LSE: RB) and Unilever (LSE: ULVR) over the past decade has been impressive. Both businesses have beaten the market many times over. They both have strengths asincomebuys. But which is the better dividend investment?
Reckitt Benckiser
Reckitt Benckiser has been one of the fastest growing companies in the FTSE 100. It has innovated better, and in a moretargeted way,than any of its consumer goods rivals, rapidly expanding its product range and growing market share. Punchy marketing has reinforced its brands. Plus it is now expanding internationally, and is looking to emerging markets for the next stage in its growth.
Yet its most recent results have disappointed, with sales and revenues figures falling below consensus estimates. If you want to understand why this is the case, you need to look at the broader macroeconomic picture.
Most of Reckitts profits are made abroad, so the strength of sterling over the past yearhas really told.Also, emerging markets, where Reckitt Benckiseris trying to grow sales,have been slowing. Whats more, Europe, where currently the bulk of sales are made, is also experiencing a slowdown, if notan outright recession. And thats not to mention a fiercely competitive retail environment, in the UK and globally (need I mention Tesco?)
However, most of these difficulties are just bumps along the road, and I am still positive about Reckitt Benckisers long-term prospects. But this might be the time the share price, which has increased so much, takes a breather. A 2014 P/E ratio of 20.1, falling to 19.7 in 2015, with a dividend yield of 2.6%,looks fully priced.
Unilever
Unilever is one of the FTSE 100s most venerable companies. After a painful restructuring at the turn of the century, Unilever has also impressed over the last decade, growing revenues and profits.
However, like Reckitt Benckiser,most of Unilevers profits are made abroad, withthe bulk of its sales inEurope and emerging markets. Just like Reckitt Benckiser, almost all its sales are made through supermarkets.
So its not surprising that, after doing so well in recent years, Unilevers Q3 results also disappointed,andthe reasons are very similar to its competitor: currency strength, emerging markets, Europe and supermarket competition.
The underlying strength of this company is clear, but it now looks expensive, at a 2014 P/E ratio of 20.0 falling to 19.0 in 2015, and a dividend yield of 3.5% rising to 3.7%.
Foolish bottom line
Both of these companies are worthy candidates to be included in your high-yield portfolio. They are growing enterprises witha stable and rising dividendwhich are lessprey to cyclical fluctuations. Both are on my watch list, but are currently rather pricey. I would only buy after a pullback.
Consumer goods firms such as Reckitt Benckiser and Unilever are investments which we think will stand the test of time.These are the type of companyincluded in our experts’ pick of businesses which we think you could hold until your retirement.
Learn moreby clicking on this link to read “The Fool’s five shares to retire on”— it’s free and without obligation!
Prabhat Sakya has no position in any shares mentioned. The Motley Fool UK owns shares of Unilever. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
