What more is there to say about Unilever(LSE: ULVR)? Whenever I return to the stock, there it is, delivering the (household) goods. It is up 21% in the past year, 95% over five years, and 200% over the decade.
Investors regularly praise the group as a long-term share price and dividend growth machine, and then Unilever goes and justifies all the praise. Management did get a bit of a kicking after the thwarted Kraft Heinz's £115bn takeover bid, but is now knuckling down to fulfil its pledge of improving shareholder value.
I invariably add a note of caution when tipping Unilever, and it is always the same: the share price looks relatively expensive, and the yield looks relatively low. Usually it trades at around 24 times earning, today it is 27.62 times, pricey even by Unilever's standards. However, with City analysts forecasting 20% earnings per share (EPS) growth in 2017 and another 9% in 2018, future growth should justify today's valuation.
Unilever currently yields 2.8%, covered 1.4 times. Again, there is plenty of progression here, with the group recently increasing its first half dividend by 18.3% in sterling terms. A stock like this one is particularly attractive for pension savers because it offers the prospect of steady share price growth and rising income. I would pop it into my portfolio like a shot.
Better still, it is relatively recession proof, as people still buy even when times are hard. I cannot imagine a time when I would not buy Unilever. If its current toppy valuation scares you, pop it on your watchlist, and wait for the market crash that everybody keeps telling us is about to happen. The perfect stock to buy on a dip.
Warming up nicely
Plumbing and heating products distributor Ferguson (LSE: FERG), formerly known as Wolseley, has also delivered steady share price and dividend income growth, and likewise trades at a premium as a result. Its share price is up 95% over the last five years, and 16% over 12 months. It also looks relatively expensive, trading at around 20 times earnings, although not quite as expensive as Unilever.
There are similarities with the dividend too, which is low, but highly progressive, with management hiking the full-year payout by 10% in 2017. That is the beauty of dividend stocks. Where else do you get a 10% pay rise? The current yield is 2.1%, generously covered 2.6 times, which offers scope for further improvement. As if that wasn't enough, management also announced a £500m share buyback, the rewards of a year of strong profits growth.
Ferguson's numbers have been boosted by the weaker pound, with EPS growth of 23.1% becoming a far more modest 6.8% at constant exchange rates. Trading profits grew 25% to £1.03bn for ongoing business, or 9% at constant exchange rates, with statutory profit before tax nearly doubling from £675m to £1.18bn.
Stock markets could crash, the global recovery might grind to a halt, President Trump's reflation blitz may come unstuck, so there are always dangers. That said, US-focused Ferguson looks like a stock to pop into your pension and let the growth and income swell your retirement pot for years to come.
Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK owns shares of and 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.