The U.S. stock markets recovered reasonably well in the last four years after the start of mortgage crisis in 2008. However, the last year has been shaky due to continued European sovereign debt crisis and fears that further growth in Chinese economy may slowdown.
It is hard to predict if, when and how there will be an end to the European problem. Most investors fear the worst and have pushed prices of even strong companies to multi-year lows. It is possible that Greece and perhaps other countries may also leave the eurozone and the European economies may go into a tailspin bringing down the global markets with them.
The flip side of the coin says that these are great times for a contrarian investor who is willing to look beyond the current debt crisis. No economic crisis lasts forever. Some companies do perish during economic depression and stock prices can languish for long times, but eventually the sun does come out from behind the clouds.
In this article, I list few global stocks whose stock prices have been fallen quite a bit in the last few months. They all pay decent dividend yields and some provide a great opportunity for dividend growth. Some of these stocks could generate great total returns as and when the global economy improves and the markets recover.
Personally speaking, I would buy a dividend-paying stock at a depressed stock price, rather than a high-flying stock with great promise like Amazon (AMZN), Chipotle Mexican Grill (CMG), Facebook (FB) or Salesforce.com (CRM). I find the promise of growth far too risky than investing in well-established dividend-paying enterprises, since I am willing to look beyond the immediate problems.
Most of the stocks discussed below attract a foreign withholding tax on dividends distributed. The implications of foreign taxes have been discussed in one of previous articles, "Foreign Tax And Withholding Tax Rates". The following table lists the key figures and ratios for 15 of my favorite stocks. A brief overview of the companies and their businesses is given later.
I have extracted all the information in the article from the respective company websites. The dividend yield is computed in U.S. dollars, while the dividend growth rates are based on the native currency, except for Seadrill (SDRL), CPFL Energia S.A. (CPL) and Nippon Telegraph (NTT) which are in U.S. dollars. If you are new to investing in foreign equities then my two-part Primer on International Investing may provide further reading material - Part 1 and Part 2.
British American Tobacco
Anheuser-Busch InBev (BUD)
AB InBev is a Belgian-Brazilian beverages company that is headquartered in Belgium. It is the world's largest brewer, with 14 brands that generate over revenues of more than 1 billion USD. Its most famous brands include Beck's, Budweiser, Stella Artois and Brahma. The company grew to its current scale due to numerous mergers - Anheuser-Busch (United States biggest brewer) merged with InBev in 2008.
InBev itself was formed by the merger of Interbrew and AmBev, where AmBev was formed with the merger of two biggest Brazilian brewers - Antartica and Brahma. It is one of the largest brewers in China, which is the world's biggest beer market. Finally, AB InBev also owns 50% of Groupo Modelo which is a big Mexican brewer. Its biggest competitors include Diageo (DEO), Molson Coors (TAP) and Boston Beer (SAM) (that brews Samuel Adams).
AB InBev is one of the most expensive stocks on this list, but I think it offers a great opportunity for dividend growth going forward.
Seadrill is an offshore deep-water drilling company that is registered in Bermuda, but has its operational headquarters in Norway. It is a relatively new company having been around only for seven years. It acquired a few older drilling companies like Smedvig, Odfjell and Eastern Drilling and has grown rapidly since then. It operates a fleet of 62 units that comprises drillships, jack-up rigs, semi-submersible rigs and tender rigs that allow it to offer services ranging from shallow to ultra-deepwater areas.
Seadrill has one of the most advanced fleet though that has required the use of large debt for capital expenditure. Seadrill is well covered and followed by the Seeking Alpha investing community and there are multiple articles that detail the case for investing in Seadrilll. It is one of John Fredriksen's holdings and like many of his other companies strives to pay good dividends.
Seadrill may one of the most controversial stocks in this list due to its huge debt position. The company seems to be using debt for funding growth and acquiring an ultra-modern fleet at a fast pace. This strategy could back fire if the global energy market remains depressed for a long time, though there are no signs of that happening in the near future.
CPFL Energia (CPL)
Companhia Paulista de Forca e Luz - CPFL Energia is the largest private company in the Brazilian electricity sector. CPFL is structured as a holding company that through its subsidiaries generates electricity, distributes and commercializes energy. It operates in both free and regulated markets. It has interests in generation of renewable energy also.
The Brazilian real has been weak and that has not helped Brazilian stocks lately. CPFL stock price has been falling over the last few weeks and the stock appears to be in an attractive zone for long-term investors.
BHP Billiton (BBL)
BHP Billiton is a global mining giant that was formed in 2001 when BHP of Australia and Billiton of England merged. The company has access to a large number of mines around the world and has interests in alumina, steel, coal, iron ore, base metals, diamonds, uranium and many others.
BHP has been in the cross wires recently after reports that the company is scaling back growth plans and cutting projections due to a slowdown in the Chinese economy. Companies with the scale and global footprint of BHP can generate huge profits in good times, but then at the same time they can also generate huge losses if there are problems. However, I do not find the stock any more risky than typical large-cap stocks.
British American Tobacco (BTI)
British American Tobacco (or BAT is it popularly known as) is one of the world's most global tobacco companies. Its brands include Dunhill, Kent, Lucky Strike, Pall Mall, Benson & Hedges, 555, Rothmans, and Kool, which are sold in more than 180 countries. It does have some minor interests in cigars and smokeless tobacco (snus) as well. The company holds a significant stake (approximately 40%) in Reynolds American Inc. as well. Going forward, BAT will probably get a significant portion of its growth from emerging markets like Indonesia where it owns a majority stake in PT Bentoel. It is also making a renewed push into South America.
France Telecom (FTE)
France Telecom is one of the largest telecom companies in the world. It used to be a division of the French Ministry of Posts and Telecom, but was privatized in 1990s. Its main brand is Orange, one of the biggest telecom operators in United Kingdom and well recognized in Europe. It had more than 220 million customers as of September 2011. Its services include mobile, Internet, TV and IP telephony services.
The company's stock price has been depressed lately with the entry of cheaper mobile alternatives in the market, as well as the pervasive negative eurozone sentiments. I believe that the company would survive and the current price has factored in a reasonable dividend cut as well. It is risky, but I am willing to place my bets on a global dividend-paying stock.
GDF Suez (OTC:GDFZY)
GDF Suez is a giant energy company that is involved with electricity generation and distribution as well as production and selling of natural gas. It also has interests in exploration and production of oil and gas primarily in the European region. It has a minority stake in a water treatment and waste management company. GDF Suez became the world's largest utility after the merger of Gaz de France with Suez in 2008. It operates in more than 50 countries and its largest shareholder is the Government of France, which owns approximately 35% of the company.
I like GDF Suez particularly because of its focus on liquefied natural gas and growing investments in the emerging markets outside Europe. LNG is cleaner alternative to petrol (gasoline) and diesel and is increasingly being used for electricity generation instead of coal and diesel. It is also a feedstock for fertilizers. Countries like Japan are moving away from nuclear-powered energy and using natural gas instead.
Total is one of the six Supermajor oil companies in the world, along with Exxon Mobil (XOM), BP (BP), Chevron (CVX), Royal Dutch Shell (RDS.A) and ConocoPhilips (COP). Total operates in all aspects of the energy business - crude oil exploration and production, natural gas, power generation, refining petroleum products as well as marketing its products.
Total reached its current size after its takeover of Petrofina in 1999 and Elf Aquitaine in 2000. It has a well-diversified global footprint and gets almost a third of its production from Africa. The biggest downside is that Total has been struggling to replace existing reserves and still gets a lot of revenue from the Euro-zone economies as well as countries that experienced Arab Spring uprisings. It further lost revenue and profits due to the leak at one of its well in the North Sea recently though that has now been plugged.
BASF is one of the largest chemical companies in the world. It has grown over the last few decades rapidly by acquiring various smaller chemical companies around the world. It now provides chemicals, glues, solvents, agricultural as well as various construction related chemicals. It had been increasing dividends quite consistently over the last few years, but had a down year in 2010. I don't hold it against it, given the global downturn. Being one of the largest chemical players, BASF is definitely exposed to the cyclical nature of world economic growth.
Siemens is a multinational electronics and electrical engineering giant headquartered in Munich. It operates in Energy, Healthcare, Infrastructure, Financial services and IT solutions. It is best thought of as the General Electric (GE) of Germany. Siemens was accused in a bribery and price fixing case in 2007, but has since then resolved the issues by paying various fines. It is now making a push to grow significantly in the U.S. Siemens has also shown a great commitment to increasing dividends, and I find its current dividend yield in the sweet spot of 3.5-4.5%. Siemens is well positioned to take advantage of increase in infrastructure spending around the world even though most investors worry about a slowdown in spending in China and Europe.
Eni is an oil and gas multinational giant that is minority owned by the Government of Italy. It is involved in oil and gas exploration and production, gas marketing, power generation, petrochemicals and engineering industries. Its crude oil comes from Libya, Egypt, Nigeria, North Sea and Angola. It is Europe's third-largest refiner after Royal Dutch Shell and Total SA . The positive in Eni's favor is that it has made several new discoveries in Angola, Congo, Brazil, Norway, Pakistan, Gulf of Mexico, Alaska and even in China.
Eni is participating with Statoil (STO) for developing the North Sea discovery. Eni generates electricity using natural gas and most of its plants are in Italy. Its petroleum marketing activities are largely limited to Italy where it is the leading operator. Eni is getting rid of its stake in Snam that would help it receive cash for reinvestment in its main businesses and reduce debt. It is also trying to get out of GALP, the Portuguese oil company.
Canon is a Japanese company that specializes in imaging products for office, consumer and industrial applications. It manufactures multifunction devices (MFDs), copier machines, laser and inkjet printers and cameras. Canon also makes broadcasting equipment, semiconductor lithography equipment, ophthalmic equipment and mask aligners for LCD panels. It operates through 3 segments: Office, Consumer, Industrial Equipment and Others.
Canon's biggest competitor is Nikon (OTC:NINOY). It gets about 32% of annual revenues from Europe, 28% from Americas, 21% from Asia and Oceania and the rest from Japan. The Office Business Unit contributes about 54% to revenues while the Consumer Business Unit contributes 38%. Canon is a great innovator and was fourth in the 2010 list of largest number of patent holders (after IBM, Samsung and Microsoft).
The dividend growth has definitely slowed down but the yield is good and the demand for Canon's product remains strong.
Nippon Telegraph (NTT)
Nippon Telegraph and Telephone Corp is a Japanese telecommunication giant that was established in 1953 and subsequently privatized in 1985. The Japanese government still owns about a third of the companies shares. NTT Group consists of five major subsidiaries - NTT East, NTT West, NTT Communications, NTT DoCoMo and NTT Data.
Through these subsidiaries, NTT provides regional communications, long-distance and international communications, mobile communications and data communications. Like most Japanese companies, its stock price hasn't moved in the last 10 years having remained stuck between $19 and $25. This isn't a good sign, but I like the dividend growth and the current yield. I plan to buy the stock if it falls below $20. I want to invest in Japan and at present only own Canon. In the meantime, I will continue to search for other strong dividend growth companies from Japan.
Banco Santander (STD)
Banco Santander is the largest bank in the Euro-zone and one of the largest banks in the world when ranked by market capitalization. Santander has grown over the years by merging with and acquiring other banks. Most recently, it has acquired the Sovereign Bancorp in the U.S. and the Alliance & Leicester Bank in England. It also acquired parts of the Dutch-bank ABN Amro in 2007.
Santander has huge operations in Latin America - Argentina, Brazil, Chile, Mexcio, Peru, Puerto Rico from where it gets close to half of its profits. Its operations in Asia and Australia are relatively small. The stock price is at multi-year lows and continues to fall as investors worry about the strength of Spanish economy. Faith in Spanish banking is especially low after the government had to pump money into Bankia earlier this week.
I have been a long-time holder of Santander and my losses are mounting though I do plan to average down by buying more around $5.10.
Telefónica is a telecom provider in Europe and Latin America. It is the fourth-largest operator in the world by number of subscribers after China Mobile (CHL), Vodafone (VOD) and America Movil. Its main brands include Movistar and O2. It provides fixed phone, Internet and ADSL services along with mobile phone in Spain. Telefónica acquired O2 in United Kingdom in 2005.
Telefónica operates in almost all countries in South America and is the biggest operator in some countries. It is present in Chile, Venezuela, Brazil, Argentina, Colombia, and Peru, as well as Ecuador, Costa Rica, Puerto Rico, Guatemala, Panama, and Mexico. Interestingly, Telefónica holds a 10% stake in China Unicom.
Telefónica had a great dividend growth history until this year. It had steadily increased dividends but has run into some rough waters lately. The dividend will be €1.30 down from €1.50 distributed in 2011. This would imply that the dividend for the ADS will go down from $2.14 to approximately $1.6 for 2012. There is a plan to remunerate the shareholders via share buybacks and management has indicated that 2013 will be similar to 2012.
ABB is a global leader in power and automation technologies. It operates in more than 100 countries and I feel that it will benefit immensely from public projects in emerging economies. It is an extremely old company formed when ASEA of Sweden and BBC of Switzerland merged in 1988. ABB stopped dividend payments in 2002 and did not start paying them again until 2006. It announced a deal to acquire an American company - Thomas & Betts in January this year. Some investors worry that ABB is paying too much for the company especially at a time when global spending on infrastructure is slowing. I am willing to make a bet that eventually the synergies will help ABB combat other large players and the TNB acquisition will help ABB grow in the U.S. market.
Novartis is world's second largest pharma company based in Basel, Switzerland. It was formed when Ciba-Geigy merged with Sandoz. Novartis has a few blockbuster patented drugs like Diovan, Gleevec, Zometa among many others. It also has a very strong generics division (Sandoz) as well as a Biotech arm. Novartis has been rapidly growing in the Vaccines and Diagnostics space via its acquisition of Chiron in 2006.
In addition, Novartis is growing its presence in various animal health medications as well in OTC market with drugs like Triaminic, Theraflu, Benefiber, Prevacid, Excedrin, Vagistat, Lamisil etc. Novartis completed its purchase of Alcon (from Nestle) and merged its CIBA Vision division. I believe that Alcon eye care will help Novartis grow tremendously given its undisputed leadership position in global eye care for both pharma as well as surgical products. There isn't any significant competition to Alcon and the need for Alcon surgical products (corrective vision, cataract) is growing rapidly. The biggest negative is the stiff patent cliff especially related to Gleevec and Diovan and concerns related to success of Gilenya.
The trouble with being a contrarian investor is that it is difficult to be sure and confident. It is easier for most investors to be bullish about the next growth story and high-flying stock, but it takes lot more determination and confidence to catch a falling knife.
However, I am willing to take on some risk and continue to nibble as and when I have funds available to invest. I am currently working on another list of stocks that are riskier than this list and may offer even great opportunity at total returns.
Additional disclosure: I also have limit buy order placed for E, SDR, BBL, GDFZY.PK and BTI.