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Dividend stocks can be a great source of passive income. But investors need to be careful when selecting them as weaker businesses sometimes reduce or cancel their payouts.
Here, I’m going to highlight a FTSE 100 dividend stock I hold in my portfolio that has a brilliant long-term track record when it comes to shareholder payouts. I think this stock could potentially pay me passive income for the next two decades.
A consistent dividend payer
The stock in focus is Unilever (LSE: ULVR). It’s a consumer goods company that owns a range of well-known brands including Dove, Domestos, Knorr, and Hellmann’s.
The yield on this stock isn’t super high. Currently, it’s about 3.4%. But that doesn’t bother me. Over the last decade, investors have received overall returns (share price gains plus income) of about 9% a year, which is decent (and well ahead of FTSE 100 returns).
What I like about this stock is that it’s a very consistent dividend payer. This is a company that has paid its investors some income every year for over 30 years.
I also like the fact that the payout’s continually rising (this is important if an investor wants to beat inflation). If this year’s dividend forecast of 185 euro cents per share proves to be accurate, the payout will have been increased by about 4.4% a year over the last decade.
It’s worth noting that if the company was to continue increasing its payout at this rate for the next 20 years, investors could be looking at a yield of around 8% on today’s share price. That’s the power of growing dividends.
More income on the horizon
Now, in investing, past performance is never indicative of future performance. So there’s no guarantee Unilever will continue to be such a reliable cash cow for long-term investors like myself.
But I believe this stock will continue to reward me with steady income in the years ahead. There are several reasons why.
One is that Unilever’s brands – which are sold in supermarkets and convenience stores globally – are both very well known and trusted by consumers. This recognition and trust – the result of decades of advertising – is a major competitive advantage and should protect its profits (it also gives the company pricing power).
Another reason I’m optimistic about future income is that the company has significant exposure to the world’s emerging markets (about 50% of its sales). This provides a growth driver – which is essential when investing in dividends stocks for the long term – as incomes in these markets are rising and consumers are continually upgrading to branded products such as those offered by Unilever.
Reliable cash flow
There are a few risks to the investment case, of course. One is that new brands could capture market share and slow the company’s growth. While a lot of Unilever’s brands have been popular for decades, it’s becoming easier for new consumer brands to capture market share thanks to social media.
Another risk is a major recession or period of economic weakness. This could lead consumers to ‘trade down’ to cheaper brands.
All things taken into account however, I’m optimistic that the company can continue to reward investors with solid returns. In my view, this stock is definitely worth considering if an investor’s looking for reliable passive income.
