In China, economic prosperity has created a new class of
affluent consumers with a nearly insatiable appetite for goods
For example, consider the $7.1 billion bid that China's
largest meat processor made last week for America's largest hog
farmer and pork producer. Shuanghui International Holding is
looking to buy
Smithfield Foods (
to increase meat imports to China, where domestic production
can't keep pace with fast-rising demand.
The consumer is at the centerpiece of the emergingmarket
growth story, which is creating expansion opportunities for
consumer goods companies such as Smithfield and
supportingearnings anddividend gains forincome investors. In the
past five years, the consumer-oriented sectors of the MSCI
EmergingMarket index have significantly outperformed the
broaderindex , which in turn has greatly outperformed the S&P
500. From a pre-recession peak in 2008,consumer staples is up
82%, health care is up 66% and consumer discretionary is up
Investors eager toprofit from the appetite for consumer goods
inemerging markets could invest directly instocks based in the
so-called BRIC nations (Brazil, Russia, India and China), but
this may not be an optimal strategy. For instance,
well-publicizedaccounting frauds hint at the riskiness of
China'sstock market. Even the markets that are considered
relatively safe, such as India and Brazil, can't compare with the
U.S. stock market interms of transparency and thetimeliness of
A betteroption for most investors -- and one that's closer to
home -- is owningshares of U.S. companies with large overseas
operations. These blue-chip companies have multinational
operations, great exposure to emerging markets, reliable profit
growth and hefty dividends for income investors.
General Electric (NYSE:GE )
General Electric is the world's largestconglomerate , with
operations ranging from power generation, industrial
products and water processing to household appliances,
health care, and consumer and business financing. GE
derives more than half of itsrevenue from overseas and has
sizable operations in Europe, China, Russia, India and
Increasing its presence in emerging markets is a key
goal for GE. The company has established research centers
in China and India and manufacturing plants across the
Asia-Pacific region, the Middle East and Latin America to
benefit from rising health care spending in these regions.
Theseinvestments have paid off for GE's health care
business, with 22% annual growth in China and 19% annual
growth in Southeast Asia over the past three years. GE is
also poised to benefit from purchases of its water
filtration systems by China, where eight of the 28
provinces lack adequate supplies of clean water.
Growth in China helped GE post 12% growth inearnings per
) from continuing operations lastyear to $1.39.Analysts are
looking forEPS growth of 11% in each of the next five
years. Even more impressive, the company'scash flow
improved 48% last year, to $17.8 billion, which should
provide plenty of fuel for dividend growth. GE cut its
dividend in 2010 but has since raised it five times,
including a 12% hike in December.
Kimberly-Clark (NYSE:KMB )
The world's leading paper products company and the owner of
brands such as Kleenex, Scott, Kotex, Huggies and
Kimberly-Clark holds the No. 1 or No. 2market share in more
than 80 countries. The company is maintaining its U.S.
market share while growing its international business,
which now accounts for 37% of Kimberly-Clark'ssales , up
from 22% just five years ago.
Kimberly-Clark's EPS rose 11% last year, to $4.42, and
analysts expect 8% EPS growth for the next five years. A
Dividend Aristocrat, Kimberly-Clark has posted 41
consecutive years of dividend gains. The most recent
increase was 10% in February to an annualized rate of
$3.24. Dividend payout from cash flow is conservative at
35%, leaving plenty of room for further growth.
Philip Morris International (NYSE:PM )
Spun off from
five years ago, Philip Morris has become the world's
leading international tobacco company, with sales in more
than 180 countries. Tobacco consumption in the United
States is declining, but smoking remains very popular in
Asia and Africa.
Philip Morris has the world's top-selling cigarette
brand in Marlboro and is aggressively expanding in China,
where roughly a quarter of the population smokes. The
company partnered with China National Tobacco Corp., which
recently began producing Marlboro cigarettes under license.
In addition, Philip Morris is rapidly gaining share in
Indonesia, where 67% of the male population are smokers and
risingincomes are driving demand for premium brands. The
company's sales in Asia rose 6% last year to $11.2 billion
and now account for more than a third of its total annual
sales of $31.4 billion.
EPS rose 12% last year, to $5.45, and Philip Morris has met
or exceeded its 10%-plus EPS growth target every year since
the spin-off. The company'soperating margin is strong at
44%, well above the 37% average of its industry peers.
Philip Morris raised its dividend by 11% in September and
generates enough cash flow to cover the dividend twice
over, so future increases appear likely. With 10-year
Treasury yields still hovering near 2%, the company's 3.7%
yield becomes even more appealing.
Risks to Consider:
Simply having exposure to emerging markets doesn't make a
company a winninginvestment . A case in point is
Yum Brands (
, which is posting 20% annual growth in China but experiencing
falling sales in the United States.
Action to Take -->
My top pick overall is GE. Phillip Morris is a good choice for
investors seeking higher yields, and Kimberly-Clark is a standout
for dividend safety.
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