Cruising Overseas for Yield

 | Feb 19, 2013 | 10:00 AM EST  | Comments
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Wal-Mart (WMT) has confirmed my recent concerns about the health of U.S. consumer spending. The retailing behemoth's leaked emails show that it is experiencing its slowest start to a month in seven years. The conference call should be very interesting when it reports earnings Thursday.

A slowdown in consumer spending, which makes up some 70% of the U.S. economy, is one of my biggest worries around the market right now. It is also the main reason I am deeply underweight the consumer discretionary sector and turning a bit more conservative in running my portfolio. New money is being allocated to lower-beta, high-yielding stocks. Let's look at two overseas dividend stocks that look attractive right now. Neither company a growth juggernaut, but both provide robust yields and cheap valuations.

U.K.-based Vodafone Group (VOD) provides mobile telecommunication services to approximately 450 million customers worldwide. Four reasons that VOD is a solid income and value pick up at under $26 a share.

  • The company boasts an "A"-rated balance sheet, a low beta (0.74) and yields just under 6% based on 2012's payout.
  • Vodafone's 45% interest in Verizon Wireless is under-appreciated by the market.
  • Although the company's European operations are negatively affected by continuing challenges on the Continent, the company has a significant stake in emerging markets where revenues are growing in the high single digits. In addition, data services sales grew better than 20% in 2012 and now comprise 15% of overall revenues.
  • The stock is selling near the bottom of its five-year valuation range based on price-earnings, price-sales and price-cash-flow ratios.

Total SA (TOT) is a large multinational integrated oil & gas concern based in France. Four reasons TOT is undervalued at $50 a share:

  • Total has "AA"-rated balance sheet and yields nearly 6%.
  • The company has a 60/40 mix of oil and natural gas production. More importantly, natural gas fetches a much higher price overseas than it does in North America. It is also making progress reopening its large North Sea field (140,000 barrels of oil equivalent per day), which has been shut down for more than a year due to a natural gas leak.
  • The stock is cheap at just 7x this year's expected earnings.
  • TOT is selling at the bottom of its five-year valuation range based on price-cash-flow, price-book and price-sales ratios.

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