Thursday, September 17, 2009

Nestle's Recent Dividend Growth Is Impressive

We like foreign stocks. They have been outperforming domestic stocks since March, and we think they will continue to do so. Here are three reasons:
  1. Most of these companies derive a minority of their earnings in the US. This will benefit them as it becomes clear that the US economy will lag the global uptick in economic growth.
  2. The falling dollar, which we believe will continue, helps shareholders of these stocks due to currency translations.
  3. We believe that many international companies are much more adept at dealing with state owned or state controlled enterprises than more pro-capitalistic companies in the US. This may help them navigate the swing to the left of US governmental policies.

We believe many international companies will be growing faster than their counterparts in the US, and they may rack up currencies gains on top of that. Thus, it may be possible to make money in two ways over the next few years in many top quality international stocks.

Nestle (NSRGY) (click to enlarge the chart above) is one of the world's leaders in many branded consumer products. Nestles leads many categories of chocolate, ice cream, premium bottled water, and pet care. Nestle, shown above in Swiss francs, has a current dividend yield of 3.2% and has grown its dividend at about 11% per annum over the last 20 years. They raised their dividend by 14% in the last twelve months, a time when many companies were cutting their dividends or holding them flat.

In looking at our Dividend Valuation Chart, above, one can see that NSRGY (Nestle's US ADR symbol) is now as much undervalued as it was in 2004. That turned out to be a good entry point for the stock.

There are worries that branded consumer goods may be facing increased competition from generic producers. The consumption of generic branded consumer goods, indeed, has grown steadily over the last few years, and especially during the recent recession. Nestle, however, has positioned themselves in many of their markets with a premium product and a lower priced, near-generic product. This should insulate them from cost conscious consumers trading down.

We like Nestle's management. We think they are more shareholder friendly than many international companies. We also commend them for making a number of very tough-minded decisions when dealing with intractable labor problems.

We own Nestle. Please do not use this information for buying and selling decisions. Consult your own investment adviser. Please review the Terms and Conditions link at the right.