Picture supply: Getty Photographs
Receiving and reinvesting dividends is a technique of rising a passive revenue portfolio. Over time, this may have some spectacular outcomes as the facility of compound curiosity does its factor.
Even higher, although, is discovering an organization that grows its dividend with out shareholders having to place up extra money. And I believe Unilever (LSE:ULVR) can do that for a very long time to come back.
Warren Buffett
In 1994, Warren Buffett’s funding in Coca-Cola (NYSE:KO) generated $75m in dividends. In 2022, the identical funding returned $704m in passive revenue – a rise of 838%.
Importantly, this wasn’t the results of Berkshire Hathaway reinvesting the dividends it acquired. It was simply the Coca-Cola firm paying out extra in dividends per share.
I don’t assume shopping for shares in Unilever right now goes to be like shopping for shares in Coke in 1994. I may very well be unsuitable, however I’d be stunned if that turned out to be the case.
I do, nonetheless, imagine there are some necessary similarities. And I anticipate these to imply the FTSE 100 firm can develop its dividend per share for many years to come back.
Share buybacks
Coca-Cola has elevated its dividend per share as a result of the underlying enterprise has grown, however this isn’t the one purpose. The corporate has additionally decreased its share rely by means of using buybacks.
Coca-Cola diluted shares excellent 2004-24
Created at TradingView
That is necessary. Bringing down the general variety of shares means it’s potential for the agency to extend its dividend per share even when the underlying enterprise doesn’t generate any more money.
In 2004, for instance, Coca-Cola distributed $2.43bn in dividends. With 4.82bn shares excellent, that quantities to roughly 50 cents per share.
With the share rely now at 4.31bn, the identical $2.43bn would quantity to only over 56 cents per share in 2024. That’s a better dividend per share even when the enterprise as an entire doesn’t pay out extra.
Unilever’s progress prospects
Unilever doesn’t have Coca-Cola’s document with regards to buybacks. However during the last 10 years, the corporate has been steadily decreasing its excellent share rely.
Unilever diluted shares excellent 2004-24
Created at TradingView
I’m not anticipating this to generate explosive progress by itself. However I believe it may be a sturdy increase for shareholders in a enterprise working in an business the place demand ought to develop steadily.
The danger with Unilever is the opportunity of shoppers switching to cheaper alternate options, particularly in a tough financial setting. That is one thing buyers ought to regulate.
The corporate’s model portfolio and the size of its distribution give it a bonus over rivals, although. And I believe this makes the outlook promising for dividend buyers.
Ought to I purchase Unilever shares?
I believe passive revenue buyers ought to take a detailed have a look at Unilever shares. Lengthy-term progress ought to come from incremental beneficial properties, quite than a dramatic increase, however these can add up over time.
It’s simple to underestimate the impact share buybacks can have. Demand may fluctuate from yr to yr, however decreasing the share rely ought to hold the dividend rising constantly.
