These companies make products you might use on a regular basis. Could one of them be worth owning?
The United Kingdom is home to two of the world’s largest consumer products titans, Unilever (LSE: ULVR) and Reckitt Benckiser (LSE: RKT). Reckitt Benckiser’s key brands include ones like Woolite, Finish, Enfamil, and Mucinex. Unilever’s include ones like Axe, Dove, Vaseline, and Hellman’s. These are brands that people buy and use every day -- and they’re products that people are generally willing to spend money on, even when times are otherwise tough.
That makes these companies ones that look capable of making it through even a prolonged recession. As a result, potential shareholders may want to consider whether one of them looks like a better potential investment than the other.
Valuation comparison
Unilever currently trades at about 19.4 times its anticipated earnings, and those earnings are expected to grow by about 3.8% annualized over the next five years. Reckitt Benckiser sits at 19.5 times its projected earnings , while those earnings are expected to grow by about 5.6% over the next five years.
Since both trade at comparable multiples to near term expectations, Reckitt’s faster potential growth rate gives it a slight advantage on the valuation front. Ordinarily, you’d expect that a company projected to grow faster would command a premium price relative to a business with similar operations that is expected to grow slower. Should both companies deliver growth exactly in line with their expectations, Reckitt’s shareholders could see slightly faster share price appreciation.
Balance sheet comparison
Reckitt Benckiser sports a 0.94 debt to equity ratio and a 0.63 current ratio. Unilever carries a 1.36 debt to equity ratio and a 0.75 current ratio. The lower a company’s debt-to-equity ratio (as long as it is 0 or above), the less dependent the business is on being able to manage its debt to stay in business. In addition, the lower that debt ratio, the less exposed, relatively speaking, the company is to rising interest rates.
As for that other measure, the higher a company’s current ratio, the better positioned it is to be able to pay the bills it has coming due soon, even if it runs into short term operational blips.
Neither Unilever nor Reckitt Benckiser look like they have particularly risky balance sheets. That’s especially true since they’re in the business of providing everyday essentials that people will buy even in rough economic times. That said, with a lower debt to equity ratio, Reckitt Benckiser gets the nod in this metric as well.
Dividend comparison
Unilever pays a quarterly dividend. The most recent declaration was for £0.3783 per share, with an ex-dividend date of May 18, 2023. If you assume a steady dividend rate vs. the company’s recent £43.535 share price, that works out to a yield of nearly 3.5%. Unilever’s dividend has been fairly steady in recent years , and with a payout ratio around 58%, it would likely need decent earnings growth to justify any significant increases.
Reckitt Benckiser pays its dividend twice a year -- an interim and a final dividend . After the COVID-19 pandemic, its board of directors updated its dividend policy to shift to a strategy of sustainable dividend increases over time. Over the past year, its dividend worked out to £1.833 per share and was higher than the previous year’s. At a price of £64.90 per share , that’s a yield around 2.8%. With a payout ratio of around 54%, there is reason to believe Reckitt Benckiser could increase its dividend in line with its earnings growth over time.
Comparing the two companies, Unilever’s current yield is higher, but Reckitt Benckiser has a better recent growth trajectory and a policy that appears to be geared toward continued growth. Call this factor a draw between the two.
In the end, one of these two comes out ahead
Thanks to its better projected growth trajectory despite a comparable valuation, Reckitt Benckiser comes out a bit ahead of Unilever in this head to head comparison. Given the role both play in the global economy, however, it is likely that both businesses have a path to a comfortable longer term future.
At the time of publication, Chuck Saletta did not own shares of any company mentioned in this article.
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Sources – EasyResearch, Reckitt.com, Unilever.com, Yahoo Finance,
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