As a household goods company well known for beauty products along with food and beverages, Unilever (NYSE:UL) is a great idea to incorporate in a recession-resistant portfolio. However, due to the mundane nature of its business, Unilever stock doesn’t really generate headlines. But that has changed over the last few weeks, necessitating a deeper look into the organization.
Most prominently, Dutch UL shareholders have overwhelmingly supported a proposal to transfer the Anglo-Dutch company into a sole London-based entity. Perhaps not a commonly known fact, Unilever is quite the complicated beast given its multinational structure.
By moving the organization under one national umbrella, management can greatly simplify its tax structure.
Furthermore, FT.com reports that “The company has said a successful move to simplify its corporate structure would make equity-based acquisitions or disposals easier and faster.” Theoretically, this should be a positive for Unilever stock due to the inherent fiscal efficiencies. However, there’s a major hurdle: in Dutch politics, support has increased for hitting multinational corporations leaving the Netherlands with billions of euros in exit taxes.
Not surprisingly, then, Unilever stock has been choppy recently, with investors unsure how to digest the latest developments. Adding to the confusion, UL management has stated it would reconsider the initiative if it were to be impacted by the proposed Dutch tax.
Nicknamed “Hotel California” after the Eagles’ song lyric, “you can check out any time you like, but you can never leave,” Unilever stock faces a penalty of 11 billion euros if the underlying company heads exclusively for English pastures.
I must say that the Dutch have a twisted sense of humor. Fortunately, that’s not the only newsmaker for Unilever stock.
ESG Catalysts Could Lift Unilever Stock Over the Long Run
On Wednesday, Sept. 23, Cosmopolitan released a much more interesting (at least to me, anyways) headline. Unilever has made a significant step toward advancing its United for America initiative. According to Cosmo contributor Mariah Schlossmann, this is a program that: “seeks to help struggling communities in major U.S. cities tackle the current challenges facing Americans due to the COVID-19 pandemic. Since the initiative was launched in March, Unilever has partnered with a number of retailers to raise over $20 million for affected communities, with a new commitment to donate an additional $5 million before the end of the year.”
In the second phase of the program, Unilever will support 10 U.S. communities. Specifically, the company will address “issues of the education gap, limited access to food and other essential supplies, and the support of women-owned businesses.” Clearly, the company’s actions will position Unilever stock as an environmental, social and governance (ESG) play. Not only that, the timing couldn’t have been better.
Although it’s an ugly topic that is frequently trolled by far-right groups and the blissfully ignorant, the novel coronavirus pandemic has disproportionately impacted communities of color. And that means presently, we have two racial demographics in the U.S.: white and non-white.
Since 2000, the unemployment gap between white workers and people of color has significantly declined. Although it increased unfavorably to communities of color following the 2008 financial crisis, the gap declined noticeably during the first three years of the Trump administration. So, let’s give credit where it’s due.
However, in this year, the unemployment gap has accelerated, with white workers enjoying a much more robust recovery than people of color. Until this gap improves to where it was during Trump’s administration pre-pandemic, we may see increased tensions in this country.
Covid-19 Has Also Set Back Women
Another reason why Unilever’s initiative is so critical is because women have also been disproportionately impacted by the pandemic. Because female consumers make up a significant core of Unilever’s marketing efforts, the company’s equality program is a win-win.
Plus, it’s just the right thing to do. During the 1950s through 1970s, the unemployment gap between men and women was 31% favoring the gents. But thanks to progressive politics and the empowerment of women in the workplace, that gap narrowed to less than 2% in the 1980s. From the 1990s to the end of last decade, the gap was 4% in favor of women.
But this year, all that progress has been reversed, with the unemployment gap up 6.6% favoring men.
Now, the typical conservative pushback is that women mostly occupy “soft” jobs while men occupy “hard” jobs. But that dynamic doesn’t quite explain economic utility. For instance, how many apps do we really need?
More importantly, women outperformed men in terms of unemployment, with the gap of 15% favoring female workers between 2008 and 2011. Those were very difficult years. So, what happened this time around that men are now back on top?
Well, the beauty of Unilever stock is that the underlying company isn’t sitting around shrugging its shoulders. Management is actively promoting programs to help rebalance this economy, something that our elected officials should be doing more of.
Great Story, Great Company
Frequently, when discussing recession-resistant companies, I’ve picked out UL stock because of secular demand. No matter how bad things get, you’re going to need to eat and drink. Further, as the economy improves, the company offers several brands that should perform well as discretionary purchasing power increases.
But Unilever is now an organization that’s taking corporate governance very seriously. It’s not just talking the talk but walking the walk. And what a great time it is to get some fresh air.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.