Wednesday, May 20, 2015

International Diversification May Be Closer than You Think

With the threat of higher interest rates, which could potentially slow the economy, it might be a good time to think about international diversification. This can be accomplished by many different means such as buying a foreign stock, buying an ADR of a foreign company or investing in an international fund. However, one method that is often overlooked is buying large U.S. multi-national companies.

As a result of globalization, many large U.S. companies now realize a significant percentage of their revenue from foreign markets. Companies that are diversified across several economies offer a real diversification benefit to their investors. They often can reallocate resources from slowing national economies to areas in the world that are enjoying more robust growth.

Below are five U.S. companies that have more than 50% of their sales revenue generated outside the U.S. based on their latest 10-K:

Colgate-Palmolive Co. (CL) is a major consumer products company that markets oral, personal and household care and pet nutrition products in more than 200 countries and territories.
Non-U.S. Revenues: 77% | Yield: 2.2%

3M Co. (MMM) provides enhanced product functionality in electronics, health care, industrial, consumer, office, telecommunications, safety & security and other markets via coatings, sealants, adhesives, and other chemical additives.
Non-U.S. Revenues: 63% | Yield: 2.6%

Johnson & Johnson (JNJ) is a leader in the pharmaceutical, medical device and consumer products industries.
Non-U.S. Revenues: 53% | Yield: 3.0%

Exxon Mobil Corporation (XOM), formed through the merger of Exxon and Mobil in late 1999, is the world's largest publicly owned integrated oil company.
Non-U.S. Revenues: 62% | Yield: 3.4%

McDonald's Corporation (MCD) is the largest fast-food restaurant company in the world, with about 33,700 restaurants in 119 countries.
Non-U.S. Revenues: 68% | Yield: 3.5%

As always, with rewards comes risks. Doing business in countries with different economic and social values can sometimes lead to undesirable results. In the past, U.S. companies have lost facilities to hostile foreign countries when the politics turned against the U.S. Also, currency exchange can work for or against the company (recently it has been against.) As always, you must weigh the risks vs. rewards prior to investing.

Full Disclosure: Long CL, MMM, JNJ, XOM, MCD in my Dividend Growth Portfolio. See a list of all my dividend growth holdings here.

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Tags: CL, MMM, JNJ, XOM, MCD,

5 comments:

  1. But how does the investor share fairly in profits generated abroad and kept often in tax heavens outside the US?

    ReplyDelete
    Replies
    1. That ind is an issue. In time of international economic growth and international expansion, foreign cash can be used for this expansion, freeing up domestic cash for share repurchases and dividends. I do hope the tax law changes to allow more favorable repatriation of cash held in foreign accounts.

      Best Wishes,
      D4L

      Delete
  2. I think I must be doing something right. I have 4 of the 5!

    ReplyDelete
    Replies
    1. If you held those stocks for the last 20 years, you certainty are doing all the right things!

      Best Wishes,
      D4L

      Delete
  3. I'm long JNJ, XOM and MCD in my dividend growth portfolios. I didn't even consider the international diversity they added when I purchased them. Thanks for the article.

    Ken

    ReplyDelete

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