Does anyone else share my concern at the continual increase of Unilever's debt? I hold shares in this company.
Currently standing at 147.8% net gearing.
2016 = 77.8%
2015 = 75%
2014 = 71.7%
2013 = 57.8%
2012 = 48%
The rationale for increasing the debt has been to fend off the Kraft Heinz acquisition as well as increase dividends for shareholders.
I personally don't think borrowing money as a means to pay for increased dividends amounts to good strategy. Carillion springs to mind!!
I agree.
But it's not just Unilever (LON:ULVR) many FTSE100 companies are in a similar situation.
Many of the classic shares are in a circular trap of high debt and high dividends - for example I struggle to see a way forward for GlaxoSmithKline (LON:GSK) - especially if they insist on being open to further acquisitions.
I understand how this situation has arisen - cheap debt. But the tide is turning on interest rates and therefore companies need to have a plan to pay down, which in many cases will require looking at dividend policy. But this will be unpopular and impact on the share price.
Currently I have a policy of not investing in companies with high debt levels, whether they be blue chip or not, for the above reasons.
Phil
PS I do have a minor stake in one highly geared company - Shire (LON:SHP) - but this is on the basis it has a negligible dividend and will use its resources to pay off the debt as quickly as possible.