Kevin Parker's  Instablog

As I mentioned in my previous article on why you should own Walmart, the international growth is very exciting for this company.  Specifically, the emerging markets represent major opportunity.  Two markets essentially untapped for Wal-Mart Stores, Inc (WMT) are South Africa and India.

South African penetration is getting closer as it is likely that the Massmart acquisition is approved very soon.  With regards to India, it is a slower process, but one that looks to be making progress as well.

India will further relax its rules for foreign investment in retail possibly by 2012. Current law limits foreign retail investment to operating wholesale stores or 51% ownership in single-brand retail stores. The intention is to protect local store owners.

Walmart operates a handful of wholesale stores currently in the country, but will indeed expand quickly as laws are relaxed.

Food prices are one of the driving factors for Indian officials to possibly relax retail laws. International companies like Walmart can bring expertise in supply chain management and technology to improve distribution of products, specifically food. About 40 percent of India’s fresh food – fruit and vegetables – rot before they can be sold to consumers due to the lacking of cold-storage facilities and transportation infrastructure.

India represents one of the largest emerging markets for foreign companies and essentially the largest untapped market for retailers. The opening up of the Indian market is a slow, long-term process but most view it as a matter of when, not if.

Look for India to be a major contributor to international growth for Walmart in the years and decades ahead.

If you own Walmart, you can follow my insight and tracking of the company at my Walmart Investor Page.


Disclosure: I am long WMT.

Altria Group, Inc. (MO) announced today that they are increasing their quarterly dividend by 8.6% from $.35 a share to $.38 a share or from $1.40 annually to $1.52 annually.  Altria continues its practice of increasing their dividend payout every single year as it has done since 1970.

As the economic data deteriorates and more people buy in to the idea that we are actually in an economic depression versus a typical business cycle recession, I believe that the focus will increasingly turn towards dividends, income, and capital preservation versus speculation and share price appreciation.   Stocks like Altria will continue to gain attention because of the income characteristics, event while Altria faces continued litigation risks domestically with Philip Morris USA.

Personally, I like Philip Morris Int'l (PM) better than Altria since there is actual growth in some international markets and some areas of the globe are without the litigation risks that the developed markets come with.  Philip Morris Int'l also is dedicated to increasing its dividend payouts.

Both Altria and Philip Morris respresent companies that have the following characteristics:

1. A track record of increasing dividends year after year
2. Recession-resistant businesses that produce immense cash flows

In my opinion these are the companies that must make up the bulk of your portfolio in today's economic environment.

McDonalds Corporation (MCD) and Wal-Mart Stores, Inc. (WMT) are two other stocks that I like moving forward.

New investors should consider using DRIP plans to directly invest in these companies over time and allow the dividends to reinvest and build their position.  DRIPs offer a low-cost method of investing that makes it easy for young investors to build positions of quality companies over time.  Since you're focused on building a position, it also removes the risk of unloading your positoin based on short-term feeling and thinking.

You can read more about investing in DRIP plans here.


Disclosure: Long PM, WMT, MCD

I believe that we're in the early inning of a prolonged economic depression.  Stagnant economic growth for years will cause a secular shift in American behaviors that will result in a turning away from debt-financed consumption and more towards responsible savings.  If these were the only factors that we needed to worry about to determine our investing strategy, it would be easy.  We'd likely just focus on consumer staple stocks and bonds with decent yields.  Unfortunately, perhaps the biggest factor moving forward is the government & Fed.  With zero interest rate policy (ZIRP) for the foreseeable future and more quantitative easing down the road, it's tough to determine where to find return.

While I do believe in the principle of protecting capital first and finding return second, protecting your capital in an inflationary environment is still a losing proposition.  Since the Fed is determined to absolutely punish savers, you have to have some element of risk in your portfolio just to break even.  Yes, you can thank our leaders for this policy that they have deemed is in the name of the greater good.

Stocks are a decent hedge against inflation.  To an extent, companies can pass on costs to their consumers.  Now, in a severe-inflationary environment or hyperinflationary environment, this will probably not hold up and equities will still suffer.  Therefore, we can perhaps hedge against inflation which seems very possible with some sound dividend stocks and the less probably severe/hyper-inflationary situations with some small positions in gold and other instruments that are seriously leveraged to a jump in commodities.  For this, you might consider SPDR Gold Shares (GLD) or PowerShares DB Oil (DBO) which have shown to have a decent correlation to the underlying commodity; gold and oil respectively.  If you're bullish on gold, there is no replacement, however, for physical gold in your possession.  If you wish to speculate further, consider the Market Vector Gold Miners ETF (GDX) which should really outperform in an environment where gold is going higher.  With that said, gold mining companies will likely collapse in a hyperinflationary environment as costs for everything including labor and equipment spiral out of control so there is still risk with GDX even with higher gold prices.

Dividend yielding stocks that will perform in a slow economy should make up the bulk of your portfolio.  For this, I really like Wal-Mart Stores, Inc. (WMT), McDonald's Corporation (MCD) and Philip Morris Int'l (PM).  You might also consider a stock like Healthcare Services Group Inc (HCSG) which has a track record of dividend growth, is positioned to thrive in the demographic shifts that are happening and is still a relatively small company with lots of growth potential ahead.

While I'd love to say that you should just bail on the stock market and stick to cash, with the Fed policies both now and what I anticipate in the future, I just can't see that as the best strategy.  You could consider a portfolio of just cash and gold but I like the combination of cash, dividend stocks and a small chunk of gold or commodity positions that will jump in an inflationary situation.

To hedge against volatility, consider adding short positions to your portfolios in the extreme areas of consumer discretionary spending.  The number one area here in my opinion is boating.  Adding a short to companies like Brunswick Corp (BC) or Marinemax, Inc (HZO) can help hedge against losses in your long positions during a time when there will undoubtedly be volatility in the markets.

Any real return in the next decade is going to be a positive, so don't think you need to hit it out the park.  For young investors, the compounding ability of dividend paying stocks can make you very wealthy - something I address in more detail in How to get where you want to be in 10 years.

Disclosure: Long PM, WMT, MCD, HCSG, GDX; Short BC