An excellent cash creator
Unilever has a terrific ability to throw up boatloads of cash, a quality it has managed to maintain in spite of slowing consumer activity in critical emerging markets. Despite the added effect of heavy investment and adverse currency movements during January-July, free cash flow still clocked in at a healthy 800m, albeit down from 1.3bn during the first six months of 2013.
The household goods giant has a very decent record of delivering splendid year-on-year dividend increases even in times of earnings pressure, helped by its hefty capital pile. And City analysts expect the firm to keep the rewards rolling, with Unilever anticipated to lift the dividend from 109.49 euro cents last year to 113.8 cents in 2014 and 121.7 cents in 2015, payouts which generate yields of 3.4% and 3.7% correspondingly.
Furthermore, Unilevers substantial capital buffer also gives it the firepower to plough vast sums in its so-called Powerbrands to deliver consistent top-line growth.
Indeed, the business hiked net capital expenditure surge to 800m during the first half of 2014 from 600m in the corresponding 2013 period, and has turned up the heat on brand development and marketing activities across the globe in particular to bolster sales. With underlying sales rising 3.7% during the first half this strategy is clearly paying off despite a difficult trading environment.
More asset shedding on the horizon
As well, Unilevers decision to significantly streamline the group should further boost the firms bank balance, not to mention improve earnings efficiency.
So far the firm has dedicated divestment activity towards its embattled Food division, and has sold off its Ragu and Bertolli pasta sauce brands in North America, Peperami and BiFi meat snacks labels in Europe, and Wish-Bone and Western dressings in the US during the past year alone.
But the firm still has plenty left in the tank in this department, and recently switched its attention to its Personal Care arm by putting its Brylcreem brand on the chopping block. And as the firm battles the effect of constrained consumer spend I expect more asset sales to occur sooner rather than later.
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Royston Wild 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.