There is little doubt that many countries will experience greater growth in GDP than the US will in 2011. Depending on which prognosticator you believe, these countries range from Australia to Canada and Indonesia to Brazil. There is a general consensus, I believe, that there will continue to be growing demand in developing nations, especially the more prosperous ones which are often referred to as emerging markets. As a dividend growth investor, how can you best profit from this international growth?
Below I have listed 5 well known large cap US companies, shown with their yields, which have about half or more than half of their sales from international sources. I posit that owning these companies is a very good way to participate in global economic growth in 2011 and beyond.
These companies are stalwarts of American capitalism which have expanded their markets in up to 180 countries worldwide. "Blue Chips", they offer relative safety and reliability with long records of increasing dividend payments. They provide well below average risk and low volatility while yielding over 3% dividends.
They also have some other similarities. They are corporations which have well known names in many parts of the world. For the most part, they have important brand name products which consumers identify with and to which they are loyal. Morningstar reports 4 of the 5 companies having wide moats and KMB as having a narrow moat. These companies have detailed and specific growths plans. They are financially sound firms and the ratio of debt to total capital is less than 50%. They are also environmentally conscious and good corporate neighbors as they “give back” to the areas which they serve with many charitable programs.
I believe that in each case, the stock is attractively priced. Morningstar’s valuation indicates that the most undervalued is ABT, followed by JNJ, PG, KMB and then MCD, which is valued at fair market value. I consider ABT, JNJ and PG to be strong buys, and KMB and MCD as buys.
Abbott Laboratories (ABT) is a worldwide developer and manufacturer of healthcare products. It does business in 130 countries with sales of $34 billion, just over half of which are from outside the US. Founded in 1888 by a Chicago pharmacist, it now has a market cap of $74B. It plans to double its business in Brazil, India and China within 5 years and also sees Japan and Southeast Asia as target opportunities.
Abbott operates in four segments: Pharmaceutical Products, Diagnostic Products, Nutritional Products, and Vascular Products. For the most part its products and areas of expertise are best know to the medical community, but consumers have become familiar with Lasix Eye Surgery, and in the nutritional area, Similac baby formula is the number 1 product.
Abbott has been an innovator in the field of HIV/AIDS diagnostics and in vascular treatments. Abbott is ranked the world’s most admired company in the pharmaceutical industry by Fortune Magazine. Their growing dividend is now $1.76, which at today’s price is a yield of 3.6%.
Johnson & Johnson (JNJ) is a healthcare giant with a market cap of $172 billion and sales of $62 billion worldwide. International sales have grown rapidly the past 5 years and surpassed domestic sales in 2009. Well known to consumers, Band-Aid is a familiar trademark of this 120 year old firm. JNJ has built the most comprehensive base of health care businesses in the world, generating more than 70 percent of revenues from No. 1 or No. 2 global leadership positions in respective markets.
While much in the news recently because of product recalls, these negative events will no doubt serve to create higher quality standards and continued exceptional performance. Johnson & Johnson has a track record of growth that few, if any, companies can claim: 26 consecutive years of adjusted earnings increases and 48 consecutive years of dividend increases. Over the last decade, Johnson & Johnson stock generated a 5.4 percent total return for investors while the S&P 500 had a negative return. Yield is 3.4%.
Kimberly-Clark (KMB) has operations in 35 countries and sales in 150. In 2009, 53% of its sales were in North America, 16% in Europe and 31% in Asia, Latin America and other developing and emerging markets. Well known Consumer Brands are Kleenex, Scott, Huggies, Pull-Ups, Kotex, Poise and Depends. Their Professional Products segment makes items for the washroom, the clean room and safety products for the work room. The third area of the business is Healthcare Products, which includes products used for infection control, surgery and digestive health. From a focus developed in a 2003 plan, Kimberly-Clark aims for 5% top line growth, EPS growth in the mid to high single digits with corresponding dividend increases and a capital spending discipline set at 5% of sales. Yield is 4.2%.
McDonald’s (MCD) is a global company with only 35% of revenues coming from the US, 41% from Europe and 19% from Asia, the Middle East and Africa. The latter is the fastest growing segment of the company and operates largely in what is called emerging markets. “You deserve a break today!” is heard around the world. McDonald’s, well known for its signature Golden Arches and Big Mac hamburgers, serves 60 million customers a day from 32,000 restaurants. As well is being a global company, McDonald’s also has a local flavor. Over 80% of the restaurants are franchise owned and operated by locals and the food and ambiance is tailored to the individual markets. Yield is 3.3%
Procter & Gamble (PG) is a 173 year old company, and as one of the world’s 100 most sustainable companies, it will no doubt be around a lot longer and continue being kind to the environment. With 45% of its sales in North America, it is based in Cincinnati, Ohio. Known worldwide for its values and leadership, it prides itself on being a global good citizen. Procter & Gamble has a sales presence in 180 countries and manufacturing facilities in 40. Its distribution network consists of some of the world’s largest retailers and, in growing low income markets, 24 million “High Volume Stores”, which might be neighborhood markets, home based storefronts or a stall in a bazaar. PG has 23 $1 billion brands and another 20 $½ cillion brands which include Tide, Pampers, Dawn, Tampax, Crest, Charmin, Bounty, Gillette, Ivory Soap and Clairol. Yield is 3.0%
My desire is to prosper while sleeping well and enjoying good and increasing yields from both domestic and international business. These stocks form a solid foundation for my strategy and suit my objectives well.
This is neither a recommendation for any security nor an invitation to buy. It is provided for informational purposes only and stock selection should be based on your well considered objectives and after your due diligence.