The October inflation reading from earlier this week hit 41-year highs. Combining this with the Autumn Statement from yesterday with comments that we could already be in a recession and I’m on the lookout for some defensive stock ideas. Unilever (LSE:ULVR) is one of the largest conglomerates in the world. Given the performance of the Unilever share price so far this year, I think it could be a great stock for me to consider.
The appeal as a defensive stock
Even for few people who haven’t heard of Unilever will know the brands it owns. They range from basic goods such as Persil washing liquid to ice cream with Ben & Jerry‘s.
Almost without exception, the segments Unilever operates in are customer staples. Sure, ice cream might not be essential to my survival in a recession. But even the more discretionary goods are still affordable. What this means is that even as people try and cut back on spending during a recession, I don’t see sales at the business materially falling.
A good example of this can be seen from the Q3 results. Underlying sales growth was 10.6% versus the same period last year. If sales were falling, it would give me an early indication that things might not look great for the next year. Yet the double-digit growth gives me confidence going forward.
Unilever is also able to increase prices without having volumes drop significantly. It noted in the report that sales growth was “led by further increases in pricing with only a limited impact on volume”. It shows me that customers will keep buying the staple products, almost regardless of the price. This will help the company to maintain profit margins, even during a high-inflation period.
During a recession, the stock market, understandably, doesn’t always perform that well. But in the past, I’ve bought dividend stocks. So even if I’m not in profit on the stock, I can still pick up income during the slump.
The Unilever dividend yield is currently 3.6%. Granted, this isn’t that high in comparison to other FTSE 100 options. But the business has 21 years of consecutive dividend growth. With such a strong track record, I’m pretty confident that it’ll continue to pay out dividends even if we experience a deep recession.
There are risks
As with any stock, it’s not a guaranteed defensive play. There’s always the risk that a harsh recession causes the whole market to crash. In such a way, Unilever shares could also fall.
Another potential risk is a strategy shift. Current CEO Alan Jope is due to retire at the end of the year. Change at the very top of management can sometimes be messy and a distraction.
Yet over the past year, the Unilever share price is up 5%. The performance of the company over a volatile year gives me confidence that it can navigate whatever happens in 2023. I’m putting it on my list of stocks to buy before the end of the year when I have spare cash.
The post Why I see recession-protection value in the Unilever share price appeared first on The Motley Fool UK.
Jon Smith has no position in any of the shares mentioned. The Motley Fool UK has recommended Unilever. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2022