Seeking Alpha
Value, utilities, large-cap, mega-cap
Profile| Send Message| ()  

I will be discussing three companies in this article on which I am bullish. These three companies have posted strong financial performance in the past. Also, these companies are expected to enjoy high growth rates and have solid dividend yields. These companies are as follows:

Philip Morris (PM)
I am bullish on the stock since the company benefits from geographical diversification, high margins, generates substantial free cash flow and has a strong dividend growth history. Also, the company offers a strong dividend yield of 4.1% and is expected to experience high growth rates of 11% per annum for the next five years.

PM operates in more than 180 markets and is the market leader in the industry. The company has a strong brand portfolio; its famous brands include Marlboro, L&M and Parliament. Approximately 30% of the international market share (excluding the U.S. and China) is held by the company. PM benefits from significant geographical diversification, which I believe is a key factor in the company's financial performance.

The company has strong margins in developed markets and enjoys healthy growth rate in emerging markets. EU contributes the highest, at 35%, in total operating income, followed by EEMA's 34% and Asia-Pacific's 25%. EU segment of the company posted weak financial results in the most recent quarter but emerging markets' growth provided considerable offset to the EU weakness.

In the last three years, the company experienced a top line growth rate of 7% and an EPS growth rate of 13% annually. Analysts are expecting strong future growth for the company. Sales growth is expected to remain in the mid-single digit range, whereas earnings are expected to grow at 11% per annum for next five years. The following are the earnings estimates for the company.

2012

2013

2014

2015

EPS Forecast

$5.21

$5.79

$6.43

$7.02

Source: Nasdaq.com

PM generates strong cash and is expected to continue down this path given its small capex requirement. Also, it has been aggressively returning cash to its shareholders. It has repurchased more than $25 billion worth of shares since its spin-off in 2008. Total share repurchased are 22% of initial shares outstanding. Also, the company offers an attractive dividend yield of 4.1% and has been increasing dividends over the years.

(click to enlarge)
Source: Ycharts.com

(click to enlarge)
Source: Annual Reports

There are several risks which the investor needs to be aware of. For example, in developed markets, cigarette volumes are on the decline, which means that net price hike holds the key to sales growth in the region. Furthermore, cigarette prices in the region are reaching new highs and consumer spending power remains weak. Also, several EU countries are planning to introduce plain packaging for cigarettes, which would have an adverse impact on the company's marketing power and consequently on its sales growth.

Procter & Gamble (PG)
I am bullish on the stock due to the company's diversified geographical revenue base, attractive restructuring plan that will lead to an impressive growth rate of more than 8% per annum, and solid dividend yield of 3.3%. The company owns a strong brand portfolio and has 25 brands that generate more than $1 billion each in annual sales for the company. More than 60% of the company's total sales are generated from markets outside the U.S.

Lately, the company has been unsuccessful in delivering strong financial results. In the last three years, revenues grew by 3% and EPS fell by 2.9% annually. However, I believe the company will improve upon its financial performance as it is focused on driving growth through its emerging markets exposure and by improving upon its cost structure (cost savings of $10 billion is expected by 2016). PG has also announced its long-term plan which targets 10 key developing markets, 40 biggest businesses and product innovation. A glance at the most recent quarter reveals that PG is on track to achieve its long-term objectives. It experienced organic sales growth of 2% and EPS growth of 5% YOY.

Analysts are expecting a healthy growth rate of more than 8% annually for the next five years. The following are the earnings estimates for the company.

2013

2014

2015

2016

EPS Forecast

$3.96

$4.32

$4.55

$4.96

Source: Nasdaq.com

PG has a strong cash flow position; it generates more than $10 billion in operating cash flow each year. It has plans to spend $4 billion - $6 billion to buy back shares in 2013. The company has comfortably covered dividend payments in the past and increased quarterly dividends over the years. That is why I believe the company will increase dividends in the future and would not have any cash flow problems.

(click to enlarge)
Source: Annual Reports

(click to enlarge)
Source: Ycharts.com

Kraft Foods Group (KRFT)
KRFT has a strong market position in the industry. It offers a high dividend yield of 4.4% and an attractive growth rate of 7% - 9% per annum, which makes it great investment opportunity. Therefore I am bullish on the stock.

The company operates in North America as a food and beverage company. Kraft owns a strong brand portfolio and has leading market positions in most of the products offered. The company generates annual revenues of $18.9 billion. It has five reporting segments, where the U.S. Grocery segment contributes 25% in total sales and 41% in profits.

The company operates in the low-growth industry where revenues for KRFT are expected to grow at approximately 3% annually. However, I believe the company will be able to improve upon its cost structure and increase its margin that will lead to an attractive growth rate. Earnings for the company are likely to grow in the mid-to-high single digit range. The following are the analysts' earnings estimates for the company.

2013

2014

2015

EPS Forecast

$2.67

$3

$3.24

www.Nasdaq.com

Other than attractive growth opportunity, the company offers a strong dividend yield of 4.4%. Given its current operating free cash flow yield of 10%, I believe the company will be able to not only sustain its dividends but also achieve dividend growth as well.

Source: Strong Buy On 3 High Growth And Solid Dividend Yield Stocks