Companies with high exposure to Europe might be impacted significantly in the next year from the ongoing debt crisis. Many analysts now expect to see a recession in Europe in 2012. The most dire forecasts include the possibility of a run on European banks, which leads to bank failures, which leads to a depression in Europe.
The worst case scenarios are less likely, but it seems almost certain that the pace of business activity and consumption in Europe will be declining in the coming year. Many governments are cutting budgets, announcing layoffs, and raising taxes. This means the average consumer in Europe is going to be under either real and direct pressure, or at least indirect pressure, to make cutbacks and save more because of all the negative headlines and stories from friends.
Dividend stocks have been relatively strong performers in a very weak stock market. However, some companies may begin to see additional downward pressure on the share price in the coming months, as investors begin to sort out which ones have high exposure to the weakening European economy.
A recent Reuters article lists some global companies along with the percentage of sales derived from Europe. You can see the article here.
Below, is a closer look at some very popular dividend stocks that might be impacted by the crisis due to a high percentage of revenues derived from European countries. While some companies will probably see limited impact to their actual revenues, all of these are likely to see an impact to the share price due to investor concerns about Europe.
Sorting through the potential impact to the stock price and the possible impact to the annual revenues is where investors could have an opportunity to benefit from buying a cheap stock, and still have the benefit of being invested in a company that with stable revenues. For example, Vodafone (NASDAQ:VOD) is likely to see its stock price drop along with revenues, so that would not make as much sense to invest in as buying something like Johnson & Johnson (NYSE:JNJ) which might see a drop in the stock price, but no significant drop in revenues due to their lower exposure to Europe and the more recession-proof product line.
Johnson & Johnson (JNJ) is a global maker of health care and medical products. This company owns many well known brands such as Listerine, Motrin, Band-aid, Reach, Splenda, Tylenol, Lubriderm and Sudafed among others. These must-have type of products provide steady revenues, even in recessions. With a solid dividend and balance sheet, a stable product line, and earnings growth, this stock has everything needed for it to be considered a safe haven. Because of this, the revenue impact from Europe should be minimal. Percentage of sales from Europe: about 25%.
Here are some key points for JNJ:
- Current share price: $61.27
- The 52 week range is $57.50 to $68.05
- Earnings estimates for 2011: $4.97
- Earnings estimates for 2012: $5.24
- Annual dividend: $2.28 per share which yields 3.6%
McDonald's Corporation (NYSE:MCD) is a leading fast food restaurant with thousands of locations worldwide. This company has seen steady growth over many years and that is likely to continue as it continues to expand into emerging markets. The food and pricing at McDonald's appeals to both lower and higher income demographics, and this company can prosper in both good economic times and recessions. For example, it's possible for McDonald's to benefit from faster growth in Asian markets and also do well in Europe where a declining economy might cause consumers to seek value in their meals with a fast food restaurant rather than expensive traditional fare. If this stock sees a large decline, it's probably just a buying opportunity. Percentage of sales from Europe: about 42%.
Here are some key points for MCD:
- Current share price: $92.10
- The 52 week range is $72.14 to $95.45
- Earnings estimates for 2011: $5.22 per share
- Earnings estimates for 2012: $5.71 per share
- Annual dividend: $2.80 per share which yields 3%
Merck and Company, Inc. (NYSE:MRK) is a global pharmaceutical giant. Pharmaceutical products are in demand even when the economy is weak and this is why investors often seek drug companies as a safe harbor in tough times. This stock has dropped from recent highs of about $36. I would consider buying Merck shares on any significant weakness. It's unlikely that Merck will see a significant drop in revenues, so any dips in the stock price should be a long-term buying opportunity. Percentage of sales from Europe: about 29%.
Here are some key points for MRK:
- Current share price: $33.16
- The 52 week range is $29.47 to $37.65
- Earnings estimates for 2011: $3.75 per share
- Earnings estimates for 2012: $3.83 per share
- Annual dividend: $1.52 per share which yields 4.5%
Vodafone Group PLC (VOD) provides mobile communications services including voice, data, Internet, etc., and is based in Europe. Since the sovereign debt issues in Europe are likely to remain in the headlines for the next few months and because this company derives most of its revenues from Europe, this stock would probably see significant declines in the event of a worst-case scenario. Percentage of sales from Europe: about 75%.
Here are some key points for VOD:
- Current share price: $25.63
- The 52 week range is $24.31 to $29.75
- Earnings estimates for 2011: $2.92 per share
- Earnings estimates for 2012: $3.25 per share
- Annual dividend: about $1.92 per share which yields 7.5%
Schlumberger Limited (NYSE:SLB) provides support, project management and other services to the oil and gas industry. Cramer has given this stock a buy rating, and it does look like a great long-term investment. Schlumberger price per share almost touched $100 his year, and in the past it has traded over $100. I would try to pick up shares for about $58 or less on any weakness due to Europe. Percentage of sales from Europe: about 25%.
Here are some key points for SLB:
- Current share price: $66.37
- The 52 week range is $54.79 to $95.64
- Earnings estimates for 2011: $3.67 per share
- Earnings estimates for 2012: $4.94 per share
- Annual dividend: $1 per share which yields 1.5%
Cisco Systems, Inc. (NASDAQ:CSCO) is a leading networking hardware company. CEO John Chambers has begun plans to transform this company into a leaner and faster growing company. The restructuring plans include layoffs, other cost cutting moves, and a refocusing on the core product lines. I think Cisco is a good stock to buy on dips for long-term investors, but it might make sense to be patient because Cisco has very high exposure to Europe. Percentage of sales from Europe: about 56%
Here are some key points for CSCO:
- Current share price: $17.50
- The 52 week range is $13.30 to $22.34
- Earnings estimates for 2011: $1.77 per share
- Earnings estimates for 2012: $1.93 per share
- Annual dividend: 24 cents per share which yields 1.3%
Total SA (NYSE:TOT) is a major integrated oil company, based in France, with operations worldwide which include refining, exploration, and service stations. Total stock has been declining based on lower oil prices and debt concerns in Europe. It now trades at a very cheap price to earnings ratio of about 6, and pays a strong dividend. Total derives most of its revenues from Europe but it will probably trade along with the price of oil more than anything else. Percentage of sales from Europe: about 69%.
Here are some key points for TOT:
- Current share price: $46.77
- The 52 week range is $40 to $64.44
- Earnings estimates for 2011: $7.17 per share
- Earnings estimates for 2012: $7.20 per share
- Annual dividend: about $3.20 per share which yields about 6.9%
Data is sourced from Yahoo Finance. No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.