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Unilever N.V. (ADR) (UN): Get A 3% Yield With This Huge Emerging-Markets Play

Also in Unilever’s favor is the aggressive growth path that management has introduced. The target is to double sales and increase its social impact while reducing the environmental footprint. Unilever N.V. (ADR) (NYSE:UN) has been chosen as sector leader in the Dow Jones Sustainability Index for the 14th consecutive year. Unilever’s price-to-earnings (P/E) ratio has is nearly 20 (compared with P&G’s 18.4), but its strong growth prospects fully justify this.

Most of Unilever’s solid brands have hardly been hit during the financial crisis. Only sales in Europe declined, but that has been more than compensated by the stormy growth in emerging markets.

One very important factor for Unilever N.V. (ADR) (NYSE:UN) is the cost of raw materials. Palm oil, coffee and sugar are ingredients used in many of its products. Last year, Unilever had to take a one-time charge-off of $2 billion because of higher-than-expected soft commodity prices.

This year, commodity prices have been declining. Most commodities peaked in the summer of 2011 and are still sliding, albeit slowly. Sanford Bernstein analysts estimate that Unilever’s core operating profit could rise 30 basis points to 14%. But the price of sugar is coming down, and that is good news for Unilever N.V. (ADR) (NYSE:UN). Of course, like all food companies, Unilever is continuously hedging the swings in raw materials, but the trend is down, which should benefit its margins.

Unilever N.V. (ADR) (NYSE:UN) is not a stock you should buy for a quick scalp. It is a defensive investment that provides its shareholders with a nice dividend each year. Unilever’s dividend yield is currently 3.4%, but it has grown by 30% since 2009.

Risk to Consider: Rising commodity prices could hurt Unilever’s profit. Slight price increases could easily be passed on to consumers but bigger movements could be costly.

Action to take –> Unilever N.V. (ADR) (NYSE:UN) is growing fast in the emerging markets, and commodity costs are declining. This makes Unilever a great defensive stock to add to your portfolio.

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This article was originally written by Nico Inberg and posted on StreetAuthority.

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