The broad equity market is tumbling on Fed tapering signals. The dividend stocks in the market are the ones that are being hurt the most. However, there are dividend stocks that offer both the potential for dividend growth and price appreciation that makes them attractive for investors. In this article I will discuss companies that have high growth forecasts, solid dividend yields, significant international market exposure and strong market positions in their respective industries. The companies being discussed are Philip Morris International Inc. (NYSE:PM), Kellogg Company (NYSE:K) and The Procter & Gamble Company (NYSE:PG).
Growth
Developed markets are mature and competitive. Because of this, companies with significant international market exposure have an added advantage of higher growth opportunities. The higher growth potential bodes well for the companies’ bottom lines expansion and stronger balance sheet.
The Procter & Gamble Company (NYSE:PG) generates approximately 60% of its total sales from its international market operations. The company has also been working to improve its operational efficiency and cost structure, something that is likely to boost its earnings. Analysts project that the company might experience an impressive next five years growth rate of 7.6% on average.
With product markets in more than 180 countries, Kellogg Company (NYSE:K) is the leading frozen foods and cereal producer worldwide. The company earns an impressive 35% chunk of its revenues from international markets, resulting in geographical diversification and earnings expansion for the company. Productivity gains and continued revenue and cost synergies related to Pringles are important factors for the earnings potential of the company. For the coming five years, analysts are anticipating Kellogg Company (NYSE:K) to enjoy a high growth rate of 7.8%.
Philip Morris International Inc. (NYSE:PM), the leading tobacco company in the world, holds a dominating market share of 27%-28%. The company’s international market exposure and a strong brand portfolio have resulted in earnings expansion. A share repurchase initiatives have been undertaken to expand its earnings, with the company currently pursuing a share repurchase initiative of $18 billion. Analysts’ earnings growth expectations for Philip Morris International Inc. (NYSE:PM) are at 11% per year for the next five years.
The following table shows the analysts earnings consensus for the above mentioned three companies from 2013 up till 2016.
| 2013 | 2014 | 2015 | 2016 | |
|---|---|---|---|---|
| Procter & Gamble | $4.04 | $4.33 | $4.68 | $5.18 |
| Kellogg | $3.86 | $4.16 | $4.48 | $4.93 |
| Philip Morris | $5.59 | $6.22 | $6.91 | – |
Source: Nasdaq.com
Dividends
The three companies mentioned above also offer solid dividend yields in addition to their impressive growth potential. The dividends offered by the companies are backed by strong cash flows. The following tables display the dividend yields, payout ratios and dividend coverage for each of the three companies.
| Dividend Yield | Payout Ratio | |
|---|---|---|
| Procter & Gamble | 3.1% | 50% |
| Kellogg | 2.7% | 69% |
| Philip Morris | 3.7% | 64% |
Source: Yahoo finance
| 2010 | 2011 | 2012 | |
|---|---|---|---|
| Procter & Gamble | 2.30x | 1.85x | 1.80x |
| Kellogg | – | 1.60x | 2.70x |
| Philip Morris | 2.00x | 2.00x | 1.60x |
Catalysts
The Procter & Gamble Company (NYSE:PG) has been working on improving its costs structure. These cost-curtailing and operational efficiency-improving efforts are likely to translate into savings of $10 billion by the end of the 2016 fiscal year. The company’s significant emerging market exposure will fuel growth and is another important stock price catalyst.
Kellogg Company (NYSE:K)’s ongoing efforts to improve productivity, as well the realization of expected synergies from the acquisition of Pringles and the cost of inputs (raw materials), will be important stock price drivers in the near future.
I believe the most central performance driver for Philip Morris International Inc. (NYSE:PM) is how tactfully the company works towards alternate tobacco categories. As the tobacco industry has been suffering from declining volume, alternate tobacco categories holds a critical importance for the tobacco industry and Philip Morris International Inc. (NYSE:PM).
Risks
The three companies mentioned above have significant international market exposure, adding to the foreign currency risk in their portfolios. The strengthening of the dollar against other world currencies can negatively impact the revenues and eventual earnings of the companies as a result.
Foolish bottom line
All three companies have delivered strong financial performances in the past and have robust growth projections. Furthermore, these companies offer decent and safe dividend yields which are backed by their strong cash flows. Healthy growth projections for the companies will result in dividend growth in future as well. In the ongoing low-yield environment, these The Procter & Gamble Company (NYSE:PG), Philip Morris International Inc. (NYSE:PM) and Kellogg Company (NYSE:K) all remain attractive investment options for income-seeking investors. Therefore I remain bullish on these stocks.
Faizan Chudhry has no position in any stocks mentioned. The Motley Fool recommends Procter & Gamble. The Motley Fool owns shares of Philip Morris International. Faizan is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article 3 Consumer Stocks with Robust Growth and Solid Dividends originally appeared on Fool.com is written by Faizan Chudhry.
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