The Procter & Gamble Company (PG), Wal-Mart Stores, Inc. (WMT): Will the U.S. Government Attack These Dividends?

Kraft Foods Group Inc (NASDAQ:KRFT) does operate internationally but the United States forms a huge part of their sales. In 2012, only 21.3% of GAAP revenue came from the international and foodservice segment. Kraft’s cheese, meats, and coffees provide the bulk of revenue. The firm is well aware of the growth of the lower class in America. It has changed its marketing strategy accordingly to focus on the highest and lowest segments. Its return on investments of 11.4% is comparable to that of its competitors like Kellogg. Kraft’s profit margin of 9.0% is healthy and supports its strong yield of 4.1%. This company offers a strong yield, but long-term cuts to social programs will have a definite effect on the revenues from the company’s lower end brands.

Conclusion

Balancing the government’s budget is a hot political topic, but it is important not to get carried away by the news. What is certain is that government support plays an increasingly important role in supporting the lives of lower income consumers. A drive to a balanced budget through cuts to social programs will affect these companies and dividend investors should take note of the long term risks.

Larger and more diversified firms like Wal-Mart and Proctor & Gamble appear better suited to deal with these risks, but all of these firms carry this latent risk. Overall, Proctor & Gamble appears to be the best investment with a strong emphasis on emerging markets and a yield of 3%.

The article Will the U.S. Government Attack These Dividends? originally appeared on Fool.com and is written by Joshua Bondy.

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