Brazil will host next year's World Cup. An event like the World Cup attracts a lot of international attention. Despite the fact that the first match of the 2014 World Cup is still six months away, 250 million fans watched Friday's draw for the group stages in Mata de São João, according to the Federal International Football Association [FIFA]. The international attention is a great opportunity for organizations to expose themselves to a lot of people. Therefore, it makes sense that organizations sponsor an event like the World Cup. Among the sponsors are three great dividend stocks, namely The Coca Cola Company (KO), Johnson & Johnson (JNJ) and McDonald's Corporation (MCD).
Sponsoring the World Cup will provide the three companies with a great opportunity to build their already strong brand names even further. The marketing strategy of the three companies seems to be a perfect fit. As a result, the companies will experience great exposure to hundreds of millions soccer fans around the world, when the FIFA World Cup Brazil™ kicks off on June 12, 2014. Both local and international exposure will strengthen the brand names and brand awareness with potential customers in Brazil and in the rest of the world. First, I will discuss the companies' marketing strategies. Second, I will compare the three companies' valuation.
The Coca Cola Company
The Coca Cola Company is one of the strongest brand names in the world. The company was founded in 1886 and is currently headquartered in Atlanta, Georgia and engages in the manufacture, marketing and sale of non alcoholic beverages all around the world. The company is likely to earn $47 billion in revenue during the current fiscal year 2013.
The Coca Cola Company is a long-term FIFA partner, and together, the two organizations travel 92,000 miles to share the official World Cup Trophy with one million people in their own communities all around the world. Joseph Tripodi, Executive Vice President and Chief Marketing and Commercial Officer, stated during the presentation of the World Cup Trophy Tour:
Like all football fans, we're especially excited about the 2014 FIFA World Cup™ taking place in the spiritual home of football and the 2014 FIFA World Cup™ Trophy Tour will be our opportunity to take the energy and passion of the host nation, Brazil, and share it with millions of football fans around the world.
The company has a large geographical spread. It sells its products in over 200 countries around the world. An international event like the 2014 FIFA World Cup Brazil™ is a very effective marketing tool for The Coca Cola Company to reach a lot of their markets at once. This could be an explanation for the long-term partnership with FIFA and the World Cup tournaments.
Johnson & Johnson
Johnson & Johnson was founded in 1886 and is currently headquartered in New Brunswick, New Jersey. The company engages in the R&D, manufacture and sale of healthcare products. The company is likely to earn $71 billion in revenue during the current fiscal year 2013. The company announced their 2014 FIFA World Cup Brazil ™ partnership in 2011. According to the press release:
Johnson & Johnson has a nearly 80 year history in Brazil of addressing the health care needs of the Brazilian people through innovative health care products and services and an unwavering commitment to community engagement initiatives. Brazil represents an important emerging market for Johnson & Johnson providing a broad range of consumer, medical devices and diagnostics and pharmaceutical products.
Despite Johnson & Johnson's 80 year history in Brazil, the company earns only 10 per cent of its total revenue in South America. The year on year revenue growth was 5% during the first nine months of this year, lower than the company;s average 6.6% year on year increase in revenue. Therefore, the partnership with the 2014 FIFA World Cup Brazil™ adds a perfect opportunity to increase brand awareness in South American region.
McDonald's Corporation was founded in 1940 and is currently headquartered in Oak Brook, Illinois. The company franchises and operates fast-food restaurants all over the world. The company is likely to earn $28 billion in revenue this year. McDonald's Corporation renewed the sponsor agreement with FIFA on July 8, 2006. The company stated:
Our support of the FIFA World Cup at both the global and grassroots levels also demonstrates our ongoing commitment to promoting balanced, active lifestyles for customers around the world. As a local family restaurant, McDonald's encourages thousands of families and children to participate in community football activities, including youth football schools and junior tournaments.
The link between fast food and sports does not seem logic at first sight. However, McDonald's Corporation partnership with 2014 FIFA World Cup Brazil™ matches the ambition to lose its association with an unhealthy way of life. The company started to offer more healthy meals and supports children to participate in sport activities at home and at school.
All three, The Coca Cola Company, Johnson & Johnson and McDonald's Corporation are well-known dividend stocks. In fact, most dividend investors own at least one of these three stocks. The strong brands provide save income and cash flow to cover the attractive dividend payments. I compared the three companies forward Price/Earnings, pay-out ratio and current dividend yield (see table below).
Johnson & Johnson shares increased 33.3% year to date, while the shares of The Coca Cola Company and McDonald's Corporation only increased around 7.5% (see graph below). This makes Johnson & Johnson is the best stock market performer of the three companies. Furthermore, Johnson & Johnson's increasing share price did not lead to an overvaluation in terms of the forward P/E ratio. In fact, the P/E ratio is the lowest of the three companies. This can be explained by the higher analyst expectations towards next year's earnings growth.
The average dividend yield for S&P500 companies is 1.91%. All three companies provide a dividend well above the S&P500 average yield, honoring their status as dividend stocks. McDonald's Corporation provides investors the highest dividend yield with 3.30%, somewhat above the 2.80% yield provided by both The Coca Cola Company and Johnson & Johnson. Further, all three companies pay around 58% of their earnings in dividends. Considering that analysts expect the companies to grow earnings per share in 2014, there is more than enough space for a dividend increase next year.
As dividend investors, you could consider all three companies for your dividend portfolio. The dividend yield is attractive compared to the average S&P500 yield. Further, the marketing strategy fits with the marketing objectives. As a result, next year's exposure during the FIFA World Cup in Brazil will strengthen the brand name and brand awareness. This will support earnings and dividend growth in the future. Personally, I favor Johnson & Johnson over the two other companies, because of a higher stock return potential (next to the dividend return).