At a young age, I always asked my uncle what stocks I should buy. The simple answer was blue chip consumer staples. Blue chips, he explained provided all the benefits with much less risk. I could enjoy the rise in the market and reap a hefty dividend while avoiding market crashes. It seemed too good to be true, but this conventional wisdom holds true. Jim Cramer consistently harps on dividends, and so does any other right-minded value investor. However, I’m not going to recommend companies like The Procter & Gamble Company (NYSE:PG) and Johnson & Johnson (NYSE:JNJ). No, those were my uncle’s Blue Chips. It’s time to go on my own and discover consumer staples we will tell our children to buy.
Unilever plc (ADR) (NYSE: UL) is a producer of consumer staples on par with P&G and J&J. Unlike the two United States Stalwarts, Unilever is an Anglo-Dutch company, with powerful leadership and market exposure in the Americas, Asia, Africa, and Europe. With brands like Lipton, Dove, Hellman’s, Vaseline, and Slimfast their products are known around the world for quality and value. While P&G had a solid second quarter as its profit saw a substantial rise, they still have an uphill fight as they continue to lose market share to low cost brands. Unilever on the other hand has seen organic sales improve in emerging markets, and it continues to maintain its dominant market share in all business segments. This is especially impressive considering the global economic crisis.
It is my opinion that Unilever’s portfolio of flagship brands is less likely than Procter & Gamble’s to be subjected to low cost replacements. While it is very easy to replace your Tide detergent with a lower cost grocery brand, Lipton already offers a low cost option for tea. Unilever also outpaced P&G and its competitors on return on investment. This proves that its innovation in all segments adds to its growth prospects. Like most companies in the home product industry, Unilever pays a solid dividend of 3.2%. My final argument for Unilever over P&G is that Bill Ackman’s continued presence and pressure on P&G could inevitably cause irreversible damage to the stalwart.