Here’s why 2025 could give investors a second chance at a once-in-a-decade opportunity

I think investors who want to get a second income should always be careful Unilever (LSE:ULVR) shares. A strong product portfolio in the defense sector has a good chance of providing long-term benefits.

The problem is, the increase in share price this year has caused a decrease in the profit margin. But there is a chance that things could be different in 2025 and I think investors should aim to be prepared.

Assignments

By 2023, Unilever’s dividend yield is close to 4%. Before that, it had been 10 years since investors last had the opportunity to lock in that kind of income return.

Unilever dividend yield for the year 2015-24

Created in TradingView

They won’t do it now. The stock is up nearly 20% since the beginning of the year and the gain now makes up about 3.2% of the current share price.

Unilever has a good track record when it comes to increasing its dividends. But it’s fair to say that growth in recent years has been steady rather than spectacular.

Unilever earnings per share 2015-24

Created in TradingView

That means it is very important for investors looking to buy the stock to pay attention to the initial yield. And this decline over the past year as the stock has risen makes the opportunity less attractive.

Inflation

The opportunity to buy Unilever shares with a yield of up to 4% has come up only once in the past decade. But I wonder if it might come back around 2025.

Rising inflation in the UK has caused the Bank of England to be cautious when it comes to lowering interest rates. And this is something that may continue next year.

Inflation is about the balance between supply (goods and services) and demand (money). And while much remains to be seen, I can see factors that could increase prices on both sides of the equation.

Businesses may try to increase prices to reduce Budget costs. At the same time, a higher National Minimum Wage may result in increased purchasing power for consumers.

Second chances

Investors should note that low interest rates aren’t the only reason Unilever shares are rising. The company has done an excellent job of growing its core brands and shedding weaker ones.

But there is no guarantee that higher-than-expected interest rates will cause the stock to fall to the level where the dividend reaches 4%. But I think investors should be aware of this possibility.

At the current level, I am not sure that the return on supply is high enough to reduce the risk of consumer trading. This is a constant challenge with brands that have no switching costs – such as Unilever’s.

High inflation may increase this risk. But if interest rates remain higher than expected through 2025, the stock may fall to a point where the investment figure becomes more attractive.

Be prepared

Investing well involves being able to take advantage of opportunities when they present themselves. And equity investors who are missing out on Unilever shares in 2023 but have been thinking about it should make sure they are ready for 2025.

It may take a big drop from today’s levels to get Unilever shares to a 4% dividend yield. But since the dividend will increase next year, it may be more realistic than it seems.