I think investors looking to earn a second income should pay attention to this Unilever (LSE:ULVR) shares. A portfolio of mighty defensive brands has a good chance of delivering sustainable dividends.

The problem is that the rising share price this year has resulted in a decline in dividend yields. However, there is a chance that things could change in 2025 and I believe investors should try to be ready.

Dividends

In 2023, the dividend yield on Unilever shares approached 4%. Previously, it had been over 10 years since investors last had the opportunity to lock in this type of passive income return.

Unilever dividend rate in 2015-24

Created in TradingView

They can’t do it now. The company’s shares are up about 20% since the beginning of the year, and the dividend currently represents only about 3.2% of the current share price.

Unilever has a good track record of increasing its dividend. However, it is protected to say that growth in recent years has been more consistent than spectacular.

Unilever dividend per share for 2015-24

Created in TradingView

This means that it is more essential for investors looking to buy shares to pay attention to exit profitability. And the decline over the past year as the stock has risen makes this opportunity less attractive.

Inflation

The chance to buy Unilever shares with a 4% dividend has only appeared once in the last decade. However, I wonder if he might return in 2025.

Rising inflation in the UK has made the Bank of England cautious in cutting 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 there’s still a lot to discover, I see factors that could push prices up on both sides of the equation.

Companies may well try to raise prices to balance costs in the budget. At the same time, a higher national minimum wage may result in increased purchasing power for consumers.

Second chances

Investors should remember that lower interest rates are not the only reason Unilever’s share price is rising. The company has done an impressive job of growing its core brands and shedding its weaker ones.

However, there is no guarantee that higher-than-expected interest rates will cause shares to fall to the level where the dividend yield reaches 4%. However, I believe that investors should pay attention to this possibility.

At current levels, I am not convinced that the return on offer is high enough to offset the risk of consumer price declines. This is an ongoing challenge for products that do not require switching costs – such as Unilever products.

High inflation may escalate this risk. However, if interest rates remain higher than expected in 2025, the company’s stock could fall to a level where the investment equation becomes much more attractive.

Reckon

Good investing is about being able to take advantage of opportunities as they arise. And dividend investors who missed out on Unilever stock in 2023 but were considering buying it should make sure they’re ready in 2025.

It may take a immense decline from today’s levels for Unilever shares to trade at a dividend yield of 4%. However, with the dividend set to escalate next year, this may be more realistic than it seems.