While U.S. stocks are often among the most popular among dividend investors, there is considerable value to be found among international stocks at the moment. This is due to several factors, including a relatively strong dollar, recent significant outperformance in the U.S. stock market that has outstripped fundamental performance according to several metrics, and fears over geopolitical instability in certain international markets.
Below, we will cover three particularly intriguing international dividend stocks that could provide investors with a powerful combination of attractive income alongside long-term growth.
#1. Unilever
Unilever (UL) is a $130 billion global consumer goods company that produces and markets around 400 well-known brands in almost 200 countries.
Unilever is currently focused on aggressively growing its business in emerging markets in Asia such as India, China, Vietnam, Bangladesh, Pakistan, and Myanmar, which are promising due to their rapidly growing populations and emerging middle class.
Growth has decelerated in the last four years due to temporary challenges such as currency issues in Latin America, the pandemic, and high-input cost inflation. That said, management expects top-line growth to accelerate at a compound annual growth rate of 3%-5% moving forward and plans to boost earnings per share growth even further through margin expansion and share repurchases starting in 2024. As a result, we think Unilever can achieve 6.0% annualized EPS growth over the next five years.
Unilever's latest earnings results confirmed that it continues to face high inflation headwinds. That said, it has been able to offset much of this headwind through price hikes. Its 13 brands generating annual revenues of at least $1 billion experienced sales growth of 10.9%. However, the company's operating margin shrank by 230 basis points to 16.1%, and EPS dipped 2% due to cost inflation.
As evidenced by its significant recent price hikes, Unilever possesses a competitive advantage through the strength of its brands, which have enabled the company to generate strong and reliable free cash flows and remain resilient during recessions.
Unilever has an impressive track record of raising its dividend for 41 consecutive years, reflecting its ability to effectively execute growth initiatives.
#2. GSK
GSK plc (formerly GlaxoSmithKline) (GSK) is a healthcare company that specializes in pharmaceuticals, vaccines, and consumer products, with offerings in areas such as central nervous system, cardiovascular, respiratory, and immune-inflation disease categories. The company generates approximately $35 billion in annual sales and is incorporated in the United Kingdom.
We expect the company to achieve 3% annualized earnings growth through 2028, driven by expected increases in its new and specialty products, as well as a return to growth in vaccine sales. That said, investors should keep in mind that the company's dividend has varied from year to year, making predictable growth unlikely in the future.
GSK's fourth-quarter revenue fell 29.2% due to currency exchange, while adjusted EPS decreased 7.2% to $0.64. However, for the full year, revenue improved 13% at constant exchange rates, with adjusted EPS of $3.81. Specialty medicines revenue was down 11% for the quarter, but grew 29% for the year. Respiratory grew 22%, HIV products revenue was up 21%, and vaccines were higher by 7%. GSK expects EPS growth of 12% to 15% in 2023.
The company's competitive advantages include heavy investment in R&D along with intellectual property. With a 4% dividend yield, the ADRs down by 23% over the past year, and solid and defensive growth expected in the coming years, GSK could deliver strong total returns for investors with relatively low long-term downside risk.
#3. TotalEnergies
TotalEnergies SE (TTE) is a fully integrated oil and gas company with a market capitalization of $142 billion, making it the fifth-largest company in the industry. The company operates in four segments: upstream, downstream (primarily refining), marketing & services, and gas, renewables & power.
The company struggled to grow its production between 2010-2014, but has since returned to a solid growth trajectory, growing its output by 8% in 2018 and 9% in 2019. However, due to the pandemic and OPEC production cuts, TotalEnergies' output decreased by 5% in 2020 and 2% in 2021 but is expected to resume growth in 2023.
TotalEnergies reported a significant oil and gas discovery offshore Namibia on April 26, 2022. The find could exceed 13 billion barrels, which could make it the largest deep-water oil field in the world. The company stated that it will provide more details at a later stage. If the share of TotalEnergies is at least 6 billion barrels, it will be worth at least $100 billion, which is 60% of the market cap of the stock.
Management reported financial results for the fourth quarter of fiscal 2022 that showed its production growing 5% sequentially, but EPS declining by 22% sequentially from an all-time high of $3.83 to $2.97. Despite the decline in EPS, it was one of the best quarters in the history of the company. TotalEnergies also announced a 7% dividend raise for 2023, and the company has repeatedly stated that its dividend is sustainable at Brent prices of around $40m, while its breakeven oil price is below $25.
TotalEnergies' risk profile is bolstered by the fact that it outperformed its peers during the 2014-2017 oil market downturn due to its superior refining segment and strategic positioning. Its EPS only fell by 49% while Exxon Mobil's (XOM) fell by 75% and other oil majors posted losses.
TotalEnergies maintained most of its refineries while others sold theirs, allowing it to benefit from high refining margins. The company also produces only a small portion of natural gas in the U.S., resulting in a higher average selling price. Finally, TotalEnergies managed to reduce production costs to $5.5/bbl, almost half that of its peers.
With a dividend yield of 5% and strong dividend per share growth momentum, the company could be an excellent way to gain diversified international energy exposure.
Bottom Line
International dividend stocks such as Unilever, GlaxoSmithKline, and TotalEnergies can provide valuable diversification to U.S. investors' portfolios without sacrificing quality, income yield, or long-term growth potential. In fact, thanks to the strong dollar of late and rich market valuations in the U.S. stock market, it could be particularly prudent to increase one's allocation to high-quality international dividend growth stocks like the ones discussed here.
