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 the 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.
The three names discussed below are particularly intriguing international dividend stocks that could provide investors with a powerful combination of attractive income alongside long-term growth.
Brand Strength, Reliable Cash Flows
Unilever (UL) is one of the largest consumer goods companies in the world, producing and marketing ~400 brands in nearly 200 countries. Well-known brands include Ben & Jerry's, Q-tips, Suave, Vaseline, Axe, Dove, Hellmann's, Knorr and many more. Its products are used by more than 2 billion people every day. It has a market capitalization of $126 billion.
In early February, Unilever reported results for the full fiscal 2022. The company faced high cost inflation but it grew its underlying sales 9.0% over the prior year thanks to 11.3% price hikes, which were partly offset by a 2.1% volume decline. Unilever has raised prices for eight consecutive quarters. The 13 brands that generate annual revenues over $1 billion grew their sales 10.9%.
Due to cost inflation, operating margin shrank by 230 basis points in 2022, to 16.1%, and constant-currency earnings per share dipped 2%. This is negative, but we note that the strong brands of the company enabled it to raise prices by 11.3% without a significant effect on volumes. Unilever provided conservative guidance for 2023 due to high inflation, expecting 4%-5% growth of sales.
Unilever has stated that it will pursue growth aggressively in some emerging markets in Asia, such as India, China, Vietnam, Bangladesh, Pakistan and Myanmar. These markets are characterized by rapidly growing populations and an emerging middle class and are very promising.
Unilever has a significant competitive advantage, namely the strength of its brands. Thanks to the strength of its brands and its great execution in its growth initiatives, Unilever has always enjoyed strong and reliable free cash flows and has proven much more resilient to recessions than the vast majority of stocks. As a result, Unilever has been able to raise its dividend for 41 consecutive years (in its local currency).
The shares currently yield 3.3%.
Recession-Resistant Dividend
Novartis AG (NVS) researches, develops and markets products to improve patients' health. The company's Innovative Medicines division offers medicines in the areas of oncology, cardiovascular, dermatology, respiratory and several others. Novartis' Sandoz division markets generic drugs. Novartis employs 110,000 people and has annual sales of about $53 billion. Novartis is incorporated in Switzerland.
On April 25, Novartis reported first-quarter results for the period ending March 31, 2023. All figures in U.S. dollars. For the quarter, revenue improved 3.5% to $12.95 billion, topping estimates by $350 million. Adjusted earnings per share of $1.71 compared favorably to $1.46 in the prior year and was $0.18 above estimates. Currency exchange negatively impacted results by 5% during the quarter.
By segment, Innovative Medicines grew 7% for the quarter. Volume improved 16%, but was largely offset by lower realized prices amid generic competition. Cosentyx, which treats plaque psoriasis and is the company's second best-selling product, was lower by 4%, though sales improved 17% in regions outside of the U.S. Entresto, which is used to treat chronic heart failure and is the top grossing product, grew 32% as the product continues to see increased patient share across all markets.
Novartis increased earnings at a rate of 5.8% per year over the last decade. The company is also recession-resistant as it saw growth during the last recession. Healthcare companies often perform well during recessions as people will seek out treatments for aliments regardless of the economic climate.
The chief competitive advantage for Novartis is its Innovative Medicines division, which has shown impressive growth over the last year. Six different products have reached the $2 billion annual sales mark. Another key advantage for the company is Novartis' willingness to spend on research and development. The company spends close to $10 billion annually on R&D. This level of R&D spending should pay off as Novartis expects to bring to market 20+ different products over the next few years with the potential for at least a billion dollars in peak sales.
The stock has a safe dividend, which yields 3.3%.
Going Mobile
Vodafone Group (VOD) began operations in 1984 as an early provider of cell phone service in the U.K. Today, the company is one of the world's largest mobile communications providers, serving more than 650 million customers in 26 countries. Its immense scale and reach are evident in its ~$49 billion in annual revenue and $34 billion market capitalization.
Vodafone reported a third-quarter trading update on February 1, 2023. Service revenue was up 1.8%, which was a deceleration from the 2.5% growth in the second quarter. Europe was the culprit for slowing revenue growth, with Germany, Italy, and Spain all declining. These declines were partially offset by growth in the U.K. The company is seeing growth from initiatives like financial services revenue in Africa, as well as pricing actions it is taking to boost revenue. Vodafone still expects adjusted EBITDAaL of just over $16 billion, and just under $6 billion in free cash flow for the year.
Its core markets are producing low-single-digit revenue growth, as well as higher rates of profit growth. In addition, it has significant operations in growth areas, which has helped drive rest of world revenue growth in recent years. While the easy gains have been made, management commentary suggests there is more margin expansion coming, further enhancing its EPS growth profile. The cost savings program the company has in place has the potential to meaningfully boost margins and free cash flow generation as well.
Vodafone's competitive advantage is in its enormous global scale. Vodafone is not immune to recessions but being a utility provider, it does offer some safety from economic downturns.
The stock has a high dividend yield above 7%.
