2 Premier Healthcare Dividend Stocks in 2018

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The S&P 500 is currently trading at a forward P/E ratio of 17.1. The current valuation of the stock market is well above the 5-year average (15.1) and its 10-year average (14.4) as well. That is making it difficult for dividend investors to find new potential candidates for purchase, especially after the election rally.  Many stocks within the financial & industrial sectors that were attractively priced last October are now up double-digits in price, offering a less attractive entry point. However the healthcare sector, which was down 3% last year, offers opportunity for dividend investors.

There is something very attractive about owning a high-yield healthcare investment that can produce solid income each year. Part of the attractiveness of any dividend stock candidate is also if the firm’s stock has struggled and thus trades at a low historic valuation. There are few stocks trading at low historic valuations and high dividends today that have also suffered price declines of more than 5% in the past 12 months.  Cardinal Health and Novartis are two such firms that fit the bill.

         


Cardinal Health (CAH) is a one of the primary distributors of pharmaceuticals and medical supplies to pharmacies and hospitals. Cardinal Health is also a dividend aristocrat, a premier list of firms within the S&P 500 that have increased their dividends for 25 consecutive years.  As the S&P 500 stock index climbed by double-digits over the preceding 12 months, Cardinal Health’s stock has dropped by 18.2%.  Consistent rhetoric on drug prices and especially wholesale firms like Cardinal have put pressure on the shares.

Cardinal Health is a large and profitable healthcare firm. The firm generates more than $120 billion in total revenue. The firm is on an acquisition tear to better diversify revenue and increase growth prospects. Cardinal Health acquired Cordis and the Harvard Drug Group in 2015. The latter acquisition of The Harvard Drug Group gives Cardinal additional exposure to generic pharmaceuticals and  over-the-counter medications.   Cardinal Health expects accretion in EPS of more than $0.20 from the Harvard Drug Group acquisition for fiscal 2017. The acquisition of Johnson & Johnson’s Cordis business adds cardiology and endovascular devices to Cardinal’s inventory and will enhance the firm’s portfolio of cardiovascular, wound management, and orthopedics products.  The company also expects fiscal 2017 accretion in of greater than $0.20 per share.  Management expects continued synergies will exceed $100 million annually in fiscal 2018 and beyond. These acquisitions along with internal growth allowed Cardinal Health to report first-quarter fiscal year 2017 revenue of $32 billion, an increase of 14 percent from the comparable quarter last year.

These acquisitions will help offset recently lost supplier contracts with Express Scripts Mail Order Pharmacy and Walgreens Boots.  But margins on these contracts are razor thin at just above 1%.   Demographic trends are in the firm’s favor as older Americans will continue to utilize pharmaceuticals as the ageing baby boomers continue to rise. The firm also disclosed that its board of directors approved a new authorization to repurchase up to $1 billion of Cardinal Health common shares.  The new share repurchase program is in addition to the program approved in August 2014, of which $393 million remains available. Stock analysts project fiscal year 2017 earnings at $5.45 and 2018 earnings at $6.05.

Priced at $62.50, the company’s forward price-to-earnings ratio is 10.48.  This is well below the forward market multiple of 17.1.  Its yield of 3.05% is just above the market. Cardinal Health’s ambitious acquisition strategy and concentration on specialty drugs should allow the healthcare firm to meet or potentially exceed analyst projections in the latter half of 2018.  Double-digit dividend growth by CAH is also most likely, as its low 43% payout ratio allows for a continued ramping of its dividend for patient investors.


Novartis AG (NVS) is a large pharmaceutical firm based in Switzerland. Its shares trade on the NYSE as an American Depository Receipt, or ADR. The company was created by the merger of Sandoz AG and Ciba-Geigy AG in December 1996. It is primarily a pharmaceutical company, but also is a major producer of generic drugs through its Sandoz division. It offers eye care products through its Alcon division and also sells consumer and animal health products. Pharmaceutical products account for 55% of sales, generics for 16%, and eye care for 19%.

Novartis’ stocks has fallen by over 7% in the past twelve months. This is due to the firm losing cardiovascular drug Diovan and cancer drug Gleevec to patent losses. Its Alcon division is also facing challenages. Novartis has several key new drugs that will offset these losses including Cosentyx. Cosentyx generated $301 million in Q3, above the $260 million in Q2. Cosentyx could generate peak sales of nearly $5 billion.

Entresto remains a key focus for Novartis as the firm has spent considerable efforts to expand sales of the cardio drug. The firm is rolling out a new clinical program called FortiHFy for preventing heart failure. M-ost estimates for the drug are above $3 billion by 2021. The firm also has Gilenya, an oral drug for multiple sclerosis.  It generated $790 million in sales for Q3, up 15%.  Other key pipeline drugs include LEE01 (CDK4/6 in HR+ HER2 advanced breast cancer), PI3K cancer drugs (alpelisib, buparlisib, and afuresertib), and AMG334 for migraines.  All are potential blockbuster drugs, with peak sales potential of over $1 billion.

As for dividends, Novartis offered investors a 4% increase in the dividend payment to CHF 2.70 (Swiss Francs) per Novartis share for fiscal 2017. This represents the 20th consecutive increase in the dividend paid per share since the creation of Novartis in December 1996.

Analysts expect Novartis to post earnings of $4.95 a share for each ADR next year. Priced at $82 a share, Novartis trades at a very reasonable 14 times earnings. It currently offers investors a generous 3.75% dividend yield.  As Novartis maintains multiple different operations in pharmaceuticals, generic drugs, and eye-care – the firm offers balance for any dividend investor.  Along with Cardinal Health, it is a great selection for any investor seeking out-of-favor dividend stocks.

Top 100 Monthly Performance 11.30.17

top-100-new

Company Ticker MTD YTD
L Brands Inc LB 31.67 -11.19
Qualcomm Inc QCOM 31.17 5.18
The Kroger Co KR 25.53 -23.65
Gap Inc GPS 24.32 47.06
GGP Inc GGP 20.76 -3.28
Viacom Inc VIAB 17.85 -17.61
Hormel Foods Corp HRL 16.98 6.66
Kohl’s Corp KSS 14.87 0.49
Fluor FLR 12.35 -6.63
CVS Health Corp CVS 11.78 -0.39
Wal-Mart Stores Inc WMT 11.36 42.88
T. Rowe Price Group Inc TROW 10.79 39.02
AmerisourceBergen Corp ABC 10.72 10.37
Walgreens Boots Alliance Inc WBA 10.4 -10.21
Valero Energy Corp VLO 9.42 29.42
Progressive Corporation PGR 9.31 51.72
Cisco Systems Inc CSCO 9.22 27.17
Occidental Petroleum Corp OXY 9.18 2.19
General Mills Inc GIS 8.94 -5.29
The Mosaic Co MOS 8.73 -15.22
AT&T Inc T 8.11 -9.85
Phillips 66 PSX 7.88 16.06
Principal Financial Group Inc PFG 7.5 24.73
Discover Financial Services DFS 6.64 -0.26
PepsiCo Inc PEP 6.44 14.39
Verizon Communications Inc VZ 6.31 -0.31
Starbucks Corp SBUX 5.98 6.03
Prudential Financial Inc PRU 5.55 14.2
Marathon Petroleum Corp MPC 5.51 27.33
Simon Property Group Inc SPG 5.32 -4.94
Dr Pepper Snapple Group Inc DPS 5.29 1.39
Mitsubishi UFJ Fin’l Grp Inc ADR MTU 5.01 17.05
Quest Diagnostics Inc DGX 4.99 9.1
Infosys Ltd INFY 4.78 7.83
Dominion Resources Inc D 4.63 13.81
Pfizer Inc PFE 4.34 15.58
Seagate Technology PLC STX 4.3 5.97
Consolidated Edison Inc ED 4.28 24.59
Procter & Gamble Co PG 4.23 10.29
Comcast Corp CMCSA 4.19 10.1
United Parcel Service Inc UPS 4.04 8.84
Novo Nordisk A/S NVO 3.98 47.54
Accenture PLC ACN 3.97 28.53
Novartis AG NVS 3.9 21.52
Hess Corporation HES 3.89 -25.14
JP Morgan Chase and Co JPM 3.89 23.49
CMS Energy Corp CMS 3.85 23.09
McDonald’s Corp MCD 3.64 44.43
State Street Corporation STT 3.64 24.2
BCE Inc BCE 3.57 14.42
Boston Properties Inc BXP 3.47 1.47
Realty Income Corp O 3.43 0.25
Wells Fargo and Company WFC 3.23 42.44
Magna International Inc MGA 3.16 31.57
Public Storage PSA 2.83 -1.96
Target Corp TGT 2.51 -13.69
Darden Restaurants Inc DRI 2.49 19.22
Bristol Myers BMY 2.48 10.8
The Travelers Companies Inc TRV 2.36 12.47
Ventas Inc VTR 2.01 6.1
Medtronic PLC MDT 2 17.2
United Technologies Corp UTX 2 13.27
Duke Energy Corp DUK 1.99 19.39
Toyota Motor Corporation TM 1.89 9.48
Invesco Ltd IVZ 1.87 23.01
Tapestry Inc TPR 1.81 21.94
Eastman Chemical Co EMN 1.72 24.85
Microsoft Corp MSFT 1.7 38.01
Total SA TOT 1.49 15.01
Nestle SA NSRGY 1.4 22.24
Emerson Electric EMR 1.31 19.72
Apache Oil APA 1.11 -32.52
Diageo Plc DEO 1.07 36.32
BB and T Corporation BBT 1.04 7.78
Agrium Inc AGU 0.94 11.95
MetLife Inc MET 0.93 12.58
International Business Machine IBM 0.92 -3.69
Amgen Inc AMGN 0.91 23.29
Chubb Ltd. CB 0.86 16.73
Exxon Mobil Corp XOM 0.85 -1.09
Coca-Cola Co KO 0.35 13.97
Unilever UN 0.35 44.43
Merck & Co Inc MRK 0.33 -3.72
Capital One Financial COF 0.24 7.29
National Grid PLC ADR NGG 0.13 7.56
DowDuPont Inc DWDP 0.04 28.84
Southern Co SO -0.8 8.76
Intel Corp INTC -0.83 26.6
Schlumberger Ltd SLB -1.8 -23.35
Philip Morris International Inc PM -1.81 15.75
Bank of Nova Scotia BNS -1.97 16.8
Eaton Corp PLC ETN -2.05 19.51
GlaxoSmithKline PLC GSK -2.38 -3.6
Spectra Energy Partners LP SEP -3.42 -4.56
Oracle Corp ORCL -3.61 29.47
Cardinal Health Inc CAH -4.38 -15.85
Cummins Inc CMI -4.75 25.57
Anheuser-Busch InBev SA/NV BUD -5.24 12.42
Siemens AG SIEGY -5.55 14.28
Société Générale ADR SCGLY -9.7 7.38

Updated Top 100 Rankings

New Top 100 Stocks Added: Novo Nordisk, Boston Properties, Bristol Myers, Emerson Electric, Hormel Foods, The Mosaic Co., Apache Oil, Realty Income, Agrium Inc., Fluor, and Philip Morris International.

Deleted Top 100 Stocks: Ford Motor, Toronto Dominion Bank, UnitedHealth Group, Boeing Co., Chevron, Praxair Inc., Halliburton, AvalonBay Communities, BASF SE, Apple and Potash Corp.

Ranking Stock Name Ticker Sector Dividend Yield
1 Target Corp TGT Consumer Staples 4.38%
2 GlaxoSmithKline PLC GSK Healthcare 5.13%
3 Kohl’s Corp KSS Consumer Discretionary 5.89%
4 Pfizer Inc PFE Healthcare 3.91%
5 Qualcomm Inc QCOM Technology 4.39%
6 Novo Nordisk A/S NVO Healthcare 2.08%
7 Occidental Petroleum Corp OXY Energy 5.23%
8 GGP Inc GGP Real Estate 4.23%
9 CVS Health Corp CVS Healthcare 2.58%
10 Schlumberger Ltd SLB Energy 3.17%
11 The Kroger Co KR Consumer Staples 2.21%
12 International Business Machine IBM Technology 4.28%
13 Ventas Inc VTR Real Estate 4.60%
14 Invesco Ltd IVZ Financial 3.53%
15 Magna International Inc MGA Consumer Discretionary 2.22%
16 L Brands Inc LB Consumer Discretionary 6.53%
17 Total SA TOT Energy 5.21%
18 Verizon Communications Inc VZ Telecommunications 4.78%
19 Cardinal Health Inc CAH Healthcare 2.77%
20 Cisco Systems Inc CSCO Technology 3.52%
21 Amgen Inc AMGN Healthcare 2.62%
22 Public Storage PSA Real Estate 3.87%
23 Discover Financial Services DFS Financial 2.10%
24 Simon Property Group Inc SPG Real Estate 4.54%
25 National Grid PLC ADR NGG Utilities 4.61%
26 Toyota Motor Corporation TM Consumer Discretionary 3.31%
27 Gap Inc GPS Consumer Discretionary 4.01%
28 United Parcel Service Inc UPS Industrials 2.85%
29 Novartis AG NVS Healthcare 3.25%
30 Intel Corp INTC Technology 3.07%
31 Southern Co SO Utilities 4.75%
32 Seagate Technology PLC STX Technology 7.80%
33 Walgreens Boots Alliance Inc WBA Consumer Staples 1.88%
34 Principal Financial Group Inc PFG Financial 2.78%
35 Hess Corporation HES Energy 2.59%
36 T. Rowe Price Group Inc TROW Financial 2.66%
37 AT&T Inc T Telecommunications 5.13%
38 Boston Properties Inc BXP Real Estate 2.42%
39 Bank of Nova Scotia BNS.TO Financial 3.73%
40 General Mills Inc GIS Consumer Staples 3.36%
41 Wells Fargo and Company WFC Financial 2.93%
42 Exxon Mobil Corp XOM Energy 3.96%
43 Coach Inc COH Consumer Discretionary 3.29%
44 Infosys Ltd INFY Technology 2.77%
45 Anheuser-Busch InBev SA/NV BUD Consumer Staples 3.33%
46 Bristol Myers BMY Healthcare 2.69%
47 Nestle SA NSRGY Consumer Staples 2.69%
48 Emerson Electric EMR Industrials 3.26%
49 Mitsubishi UFJ Fin’l Grp Inc ADR MTU Financial 2.60%
50 AmerisourceBergen Corp ABC Healthcare 1.84%
51 Eastman Chemical Co EMN Basic Materials 2.37%
52 Spectra Energy Partners LP SEP Basic Materials 6.45%
53 Hormel Foods Corp HRL Consumer Staples 1.91%
54 The Travelers Companies Inc TRV Financial 2.14%
55 Dow Chemical Co DOW Basic Materials 2.84%
56 Dr Pepper Snapple Group Inc DPS Consumer Discretionary 2.41%
57 BCE Inc BCE Technology 4.56%
58 MetLife Inc MET Financial 3.39%
59 Marathon Petroleum Corp MPC Energy 2.90%
60 The Mosaic Co MOS Basic Materials 4.89%
61 Wal-Mart Stores Inc WMT Consumer Staples 2.54%
62 Société Générale ADR SCGLY Financial 4.38%
63 Comcast Corp CMCSA Telecommunications 1.43%
64 Darden Restaurants Inc DRI Consumer Discretionary 2.71%
65 Apache Oil APA Energy 2.51%
66 Unilever UN Consumer Staples 2.53%
67 Capital One Financial COF Financial 1.96%
68 Phillips 66 PSX Energy 3.23%
69 Consolidated Edison Inc ED Utilities 3.26%
70 Realty Income Corp O Real Estate 4.23%
71 Coca-Cola Co KO Consumer Staples 3.16%
72 Cummins Inc CMI Industrials 2.71%
73 Procter & Gamble Co PG Consumer Staples 2.93%
74 Eaton Corp PLC ETN Industrials 3.30%
75 Siemens AG SIEGY Industrials 2.90%
76 Merck & Co Inc MRK Healthcare 3.00%
77 Agrium Inc AGU Basic Materials 3.63%
78 BB and T Corporation BBT Financial 2.67%
79 Microsoft Corp MSFT Technology 2.13%
80 Dominion Resources Inc D Utilities 3.68%
81 Medtronic PLC MDT Healthcare 2.14%
82 Oracle Corp ORCL Technology 1.38%
83 Chubb Ltd. CB Financial 1.91%
84 Viacom Inc VIAB Consumer Discretionary 2.81%
85 Valero Energy Corp VLO Energy 4.12%
86 JP Morgan Chase and Co JPM Financial 2.14%
87 Diageo Plc DEO Consumer Staples 2.43%
88 United Technologies Corp UTX Industrials 2.32%
89 Duke Energy Corp DUK Utilities 3.99%
90 PepsiCo Inc PEP Consumer Staples 2.60%
91 Accenture PLC ACN Technology 1.87%
92 CMS Energy Corp CMS Utilities 2.71%
93 Prudential Financial Inc PRU Financial 2.89%
94 Starbucks Corp SBUX Consumer Discretionary 1.84%
95 Progressive Corporation PGR Financial 1.39%
96 McDonald’s Corp MCD Consumer Discretionary 2.32%
97 Fluor FLR Industrials 2.23%
98 Quest Diagnostics Inc DGX Healthcare 1.64%
99 State Street Corporation STT Financial 1.62%
100 Philip Morris International Inc PM Consumer Staples 3.58%

 

Top 100 Monthly Performance 4.30.17

top-100-new

Company Ticker MTD
Novo Nordisk A/S NVO 12.84
L Brands Inc LB 12.12
Société Générale ADR SCGLY 9.12
Gap Inc GPS 8.81
McDonald’s Corp MCD 7.96
Quest Diagnostics Inc DGX 7.91
Invesco Ltd IVZ 7.54
UnitedHealth Group Inc UNH 6.63
United Technologies Corp UTX 6.04
CVS CareMark CVS 5.66
State Street Corporation STT 5.39
Unilever UN 5.15
Comcast CMCSA 4.68
Siemens AG SIEGY 4.68
Wal-Mart Stores Inc WMT 4.3
Walgreens Boots Alliance Inc WBA 4.2
T. Rowe Price Group TROW 4.02
Novartis ADR NVS 3.72
Principal Financial Group Inc PFG 3.2
Anheuser-Busch InBev SA/NV BUD 3.17
Medtronic PLC MDT 3.14
Nestle SA NSRGY 3.12
BCE Inc BCE 2.94
Starbucks SBUX 2.86
Darden Restaurants Inc DRI 2.49
Accenture PLC ACN 2.19
National Grid PLC ADR NGG 2.19
Consolidated Edison Inc ED 2.09
Eaton Corp PLC ETN 2.01
Hormel Foods Corp HRL 1.79
Coca-Cola Co KO 1.67
Cisco Systems Inc CSCO 1.66
Diageo Plc DEO 1.6
Total SA TOT 1.49
CMS Energy Corp CMS 1.48
Progressive Corporation PGR 1.38
Hess Corporation HES 1.29
PepsiCo Inc PEP 1.27
Oracle Corp ORCL 1.21
Target Corp TGT 1.2
The Travelers Companies Inc TRV 0.93
Marathon Petroleum Corp MPC 0.79
Chubb Ltd. CB 0.73
Emerson Electric EMR 0.7
Duke Energy Corp DUK 0.6
The Kroger Co KR 0.54
Phillips 66 PSX 0.43
Prudential Fin’l PRU 0.33
Intel Corp INTC 0.22
UPS UPS 0.15
Southern Co SO 0.04
Mitsubishi UFJ Fin’l Grp Inc ADR MTU 0
Microsoft Corp MSFT -0.16
Cummins Inc CMI -0.17
Ford Motor F -0.17
Dominion Resources D -0.18
JP Morgan Chase and Co JPM -0.39
Exxon Mobil Corp XOM -0.44
Toyota Motor Corporation TM -0.44
Amgen AMGN -0.46
VF Corp VFC -0.62
Pfizer PFE -0.85
Dow Chemical Co DOW -1.16
Eastman Chemical Co EMN -1.3
Ventas VTR -1.58
Teva Pharmaceutical Industries Ltd TEVA -1.59
Realty Income Corp O -1.63
Agrium Inc AGU -1.7
General Mills Inc GIS -1.73
Philip Morris International In PM -1.82
BASF SE ADR BASFY -1.9
Merck MRK -1.9
MetLife Inc MET -1.91
Kohl’s Corp KSS -1.96
Procter & Gamble Co PG -2.04
Valero Energy VLO -2.53
Occidental OXY -2.87
GlaxoSmithKline PLC GSK -2.99
Magna International Inc MGA -3.22
Wells Fargo and Company WFC -3.27
BB and T Corporation BBT -3.4
AT&T Inc T -3.44
Simon Property Group SPG -3.94
Public Storage PSA -4.35
Boston Properties Inc BXP -4.39
Verizon Communications Inc VZ -4.64
Coach Inc COH -4.69
Bank of Nova Scotia BNS -5.02
GGP Inc GGP -5.82
Qualcomm Inc QCOM -6.28
Dr. Pepper Snapple Group DPS -6.4
Schlumberger Ltd SLB -7.06
Capital One Financial Corporation COF -7.25
AmerisourceBergen ABC -7.29
The Mosaic Co MOS -7.71
Infosys Ltd INFY -7.85
International Business Machine IBM -7.95
Discover Financial Services DFS -8.48
Viacom Inc VIAB -8.71
Cardinal Health CAH -10.99

3 Attractive French ADR Dividend Stocks

U.S. dividend investors should think outside the box in finding undervalued dividend stocks.  Nearly one-third of our Top 100 stocks are located outside the U.S and trade as ADRs, or American Depository Receipts.  Foreign stocks now provide higher dividend yields than their U.S. counterparts, especially in Europe.  Although many of these ADRs have infrequent trading and also tax implications, it is well worth casting your net across the world to find dividend gems.
fra
Above is the chart of the CAC40 index versus the Dow Jones Industrial Average. As you can see, French stocks have underperformed by a sizable margin, especially since early last year.  In examining French stocks, I ran a screen of those companies that pay a yield that is higher than 2.5 percent and has a market cap above 15 billion;
 Company Market Cap Yield
TOTAL S.A. 118.29B 4.97
Sanofi 107.24B 3.74
BNP Paribas SA 72.67B 4.45
AXA SA 56.25B 5.01
Air Liquide SA 41.55B 2.51
VINCI SA 40.86B 2.69
Danone 39.29B 2.73
Schneider Electric S.E. 37.95B 3.11
Orange S.A. 37.63B 4.45
Société Générale Group 34.784B 4.32
Credit Agricole S.A. 33.85B 5.03
Renault SA 22.86B 3.19
Michelin 20.17B 2.65
Carrefour SA 15.82B 3.56

Owning these stocks through ADRs also enhances risk through currency movements. If the U.S. dollar goes up, the value of your foreign holding goes down.  This has had an impact on many international funds for the last several years, as those that were unhedged against the dollar have substantially underperformed those funds that are hedged. Examine the chart of the WisdomTree International Hedged Quality Dividend Growth Fund versus the WisdomTree International High Dividend Fund.  The hedged product has far outperformed its unhedged counterpart.

dtj

 One item of note for the country and the European Union is French election risk.   The specter of a Le Pen victory has haunted the European stock rally for 2017.  While most polls have Le Pen losing in the May 7th runoff election, investors are worrying of a Trump like upset. This could lead to France’s exit from the single currency, and perhaps the European Union as a whole.

Despite the short-term risks, most investment analysts expect Le Pen to lose and stock valuations to rise as Europe catches up with the U.S. In fact, nearly 70 percent of European fund managers in the Bank of America Merrill Lynch survey foresee positive economic momentum over the next twelve months in Europe.  The odds are high that foreign stocks will outperform the U.S. over the next several years as valuations in Europe are well below that of the home market. According to data from Bloomberg and Factset, firms in Europe’s Stoxx 600 benchmark trade at 14.4 times estimated earnings versus 17.4 for U.S. firms within the S&P 500 stock index. France is even cheaper. The average price/earnings ratio of stocks in the CAC40 stock index is 12.8.  Additionally, there is evidence that when U.S. interest rates rise, the dollar actually weakens.  In fact, non-U.S. developed markets outperform 88 percent of the time when U.S. interest rates are being raised by our Federal Reserve.

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From the above list, I think there are several worthy candidates for a long-term dividend investor looking for overseas exposure.  My first is Société Générale, an ADR that trades under the symbol (SCGLY).  The banking giant is one of the largest in Europe with headquarters in Paris.  The ADR program has been active in the U.S since July 1993. It primarily operates retail banks in France, although it also maintains a large presence in Russia, Africa, Romania, and the Czech Republic. The banks recent earnings were better than expected as net profits came in at 390 million euros ($417 million).   The firm’s capital position also improved. Its tier 1 capital ratio rose to 11.5 percent from 10.9 percent the year before.

Its global banking and investor solution segment posted net profits of 432 million euros in the fourth quarter, up from 286 million euros a year ago.  International retail operations were strong, up over 50 percent to 438 million euros in the quarter. Russia was a solid contributor to growth through its Rosbank operations.  The Russian unit had net profits of 32 million euros in the fourth quarter versus a loss last year.  The bank’s international operations were the highlight of last year. Net income for 2016 in this segment was 1.6 billion euros, up over 40 percent from the 1.1 billion euros from 2015.

Given the strong rebound last year, the French banking giant once again increased its dividend. Its dividend was raised in February to 2.20 euros per share for 2017, which is $2.34 in dollars at today’s currency rates.  ADR shareholders receive 1/5 of this dividend as the structure is 5 ADR shares represent 1 Société Générale home share. This equates to $0.468 per share for U.S. ADR holders.  The dividend exdate is set on May 20. However, U.S. investors are subject to a French withholding tax of 15%, or $.0702 per share.  This reduces the expected dividend, depending on currency translations on the record date, to $.03978.  Given the current price fo the stock at $9.20 a share, the current yield is 4.32%.  This is well above most U.S banks.  The firm really stands out not just on dividend, but valuation.  Société Générale now trades at a mere 10.2 times expected earnings and a mere 0.6 book value.  U.S. banks, on average, are trading at twice this level in price/book terms and close the market multiple of the S&P 500.  I think that this is a great time to add a quality high-yielding European firm like Société Générale to a diversified portfolio.

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Carrefour (CRRFY) is my second selection in the French market. The firm is a consumer company that is actually the world’s second-largest retailer by total revenue. It is the largest retail firm in France and also has top-three market positions in Spain and Brazil. The firm is global, operating in more than 35 countries.  It operates over 13,000 stores worldwide primary in hypermarkets, supermarkets, and convenience stores.  Its operations are weighted heavily in France, with 47 percent of revenue coming from its home country.  The rest of Europe provides 26 percent of revenue while the Americas and Asia account for the balance. It recently launched an online grocery in Italy 2015 where it maintains a smaller presence and purchased Acquires Rue du Commerce and Dia France in the last three years.

Carrefour maintains over 7,700 hypermarkets, 460 express convenience stores, and 790 regular supermarkets.  Revenue at Carrefour rose by 6.2 percent in the firm’s first quarter.   Revenue was 21.3 billion euros in the first three months of the year.  After years of stumbling growth, Carrefour notched its fifth consecutive rise in revenue.  It also guided for near 4 percent revenue growth, in constant currency, for the year.  International sales were very strong, rising by 10.9 percent.  Brazil was a standout both in growth in sales and also currency.  The strengthening in the Brazilian real enhanced revenue growth by about 4 percent.  Sales in Italy rose nearly 2 percent while Spain sales growth was flat.  In its home market, Carrefour maintained sales growth of just below 1 percent.  For the full year, net profit dropped to 746 million euros last year.  But overall, sales were positive ex currency, up  3.3 percent.

As with Société Générale, the firm is trading at a very reasonable valuation of only 11.3 times this year’s earnings.  Due to election concerns and currency, the dividend was the same as last year.  The French firm has a few new positive items for the year.  This includes a new CEO and continued growth in Brazil.  Carrefour CEO Georges Plassat is not set to resign until next year, but has signaled a successor should be appointed soon. Bernardo Sanchez Incera is considered the front-runner at this point as he has been a top banker at the firm since 2014.  Also, a potential swap of stores with WalMart could enhance growth prospects.  Brazil is a big focus of the firm. Last year, the French retailer invested over 500 million euros in Brazil and Argentina.  Brazil has slowly become the second largest country behind France.   It generates 16 percent of its global revenue from the region.  Its express store business is accelerating in Brazil. It recently opened its 70th Carrefour Express store in Brazil. Five of these express stores were opened this year alone.  It now has over 100 hypermarkets and 40 supermarkets.

With the just released solid sales growth numbers and ongoing expansion in Brazil, investors should be less worried about slower growth for 2017.  Carrefour shares are down 8 percent year to date versus a gain for the CAC 40 index.  Carrefour declared a dividend of 0.70 euros per share, or 0.74 in dollar terms this year.  The dividend exdate is set on May 23. It also has a 5/1 ratio for shares of the ADR. Trading at $4.52 in the U.S. market, it offers a payment of $0.14 based on today’s currency rate.  This puts the yield at 3.09 percent.  Investors though will also pay the fifteen percent tax.  Although the yield is not as stellar as  Société Générale, I feel the stock has more potential for capital appreciation given the fact that the ADR has fallen in half from the $8 a share it traded for three years ago.

 

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“After two years of being defensive, we are offensive now,” Total’s Chief Executive Patrick Pouyanne

My last and favorite of the trio is Total SA. the large French oil company.  It is also a member of our Top 100 dividend stock list.  Total is a global energy giant that explores and refines oil.  Reserves stand at about 12 billion barrels of oil equivalent.  The company is truly global, much like competitors Exxon and Royal Dutch Shell. It operates in over 60 countries worldwide.  The firm also has a stake in Novatek, a Russian oil company.  The firm is also a large player in chemicals through TotalFinaElf subdivision known as Atofina. What I like about the firm outside its large dividend is its capital spending should dramatically decrease over the next few years, while production grows. This will allow for an acceleration of free cash flow, which will further protect the dividend.

 

Most analysts project production growth of between 4-5 percent over the next five years. This is among the top range of the oil majors.  Total SA has over 10 major projects in the works. In the past three years, Total SA has been one of the most aggressive firms at project initiations. This includes start-ups at Incahuasi in Bolivia, Kashaghan in Kazakhstan, Vega Pleyade in Argentina, ICHTHYS in Australia, and Termokarstovoye in Russia.  The firm is has also signed a Heads of Agreement (HoA) with the National Iranian Oil Company (NIOC) for the development of phase 11 of South Pars. South Pars is one of the world’s largest gas field. Total SA will control the SP11 project with a 50.1 percent interest. Total also started production at the Moho Nord site off the coast of the Republic of Congo.  TOT maintains a 53 percent stake at Moho Nord.  The firm is also diversified into solar with its 65 percent stake in U.S. solar maker Sunpower (SPWR).  For downstream growth, Total SA announced it signed a 50/50 joint venture with Borealis and Nova to for a new ethane steam cracker and polyethylene plant on the U.S. gulf coast.

Total SA offers an attractive dividend yield of 5.1%, which is above the peer average. The company also maintains a solid balance sheet.  Long term debt stands at just over $44 billion.  Cash on hand is just under $25 billion. As with our other two recommended French companies, Total recently also delivered strong fourth quarter 2016 results.   Total’s cost control was evident in its Q4 results. The company had a net profit of $548 million in Q4.  This was a big change from the net loss of $1.63 billion in the same period for 2015.  Revenues grew by a stellar 12 percent to $42.2 billion. Total’s (TOT) overall operating earnings for 2016 advanced to $2.7 billion from $2.4 billion. Total’s refining and chemical operation income rose 13 percent to over $1 billion in Q4. Upstream earnings were strong due to higher crude oil prices and a reduction in costs. Assisting earnings were higher oil prices. Average brent crude prices for Q4 were at $49 per barrel, up $4 from last year.

Total SA indicated that its new efforts to lower costs are paying off.  The firm expects that free cash flow breakeven should drop from $55 barrel to $50 barrel in the next year. This can be achieved by increasing its refining margins to $35 along with additional cost savings of a half a billion dollars. Total’s new capital expenditure budget of  $16-17 billion also will be a large portion of the firm’s savings.  This is one of the largest reductions of the oil majors. Consider that the capital budget was just over $18 billion in 2016 and was as high as $30 billion back in 2014. Production growth should prove to be a major driver of cash flow growth during the next five years with Total anticipating averaging volume of growth of about 4% per year through 2020, greatest among its peers.

Overall, Total SA stands out as a superior oil major. It offers a high dividend of just over 5 percent along with a strong growth profile and lower capital spending. Total’s full-year dividend will be 2.45 euros ($2.60) a share. This was a euro cent better than a year ago, a rare feat in the energy sector. The dividend exdate is set on May 30. Total SA shares trade at a 1 to 1 relationship with its foreign shares.  It also offers several options for U.S. shareholders in regard to withholding.  With full taxation at 15 percent, the yield comes in at 4.37 percent. It maintains one of the lowest betas within the group as well along with Exxon, at 0.9  Priced at $50.53 a share, it trades at a mere 11 times 2017 projected earnings.  Of the European oil majors, it offers the safest dividend alongside a strong growth profile.

 

 

 

Note;  Taxes paid to both France and the U.S. can obviously be a big problem for ADR investors.  In avoiding the double taxation, any dividend ADR investor should claim a foreign-tax credit on their federal tax return.  But this only applies on those ADRs held in a taxable account.  There is no credit for withholdings in IRA’s or any tax deferred account.  Overall, it is better to hold these stocks in a taxable account and then claim the credit.

Top 100 Quarterly Performance 3.31.17

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Company Ticker MTD QTD
Viacom Inc VIAB 7.76 33.39
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Cardinal Health CAH 0.77 13.93
Medtronic PLC MDT 0.1 13.7
AmerisourceBergen ABC -3.29 13.65
Amgen AMGN -7.06 13
Cisco Systems Inc CSCO -1.11 12.71
Diageo Plc DEO 1.11 12.35
Progressive Corporation PGR 0 12.28
Dow Chemical Co DOW 2.79 11.85
Eaton Corp PLC ETN 3.85 11.42
Cummins Inc CMI 1.83 11.38
GlaxoSmithKline PLC GSK 1.64 10.97
Principal Financial Group Inc PFG 1.63 9.85
Comcast CMCSA 0.45 8.88
National Grid PLC ADR NGG 4.32 8.83
Merck MRK -2.82 8.73
Dr. Pepper Snapple Group DPS 5.42 8.64
CMS Energy Corp CMS 0.49 8.3
Gap Inc GPS -2.14 8.24
Emerson Electric EMR -0.4 8.23
Eastman Chemical Co EMN 1.32 8.11
Procter & Gamble Co PG -1.34 7.66
PepsiCo Inc PEP 2.02 7.63
Quest Diagnostics Inc DGX 0.77 7.33
McDonald’s Corp MCD 1.54 7.25
Nestle SA NSRGY 4.36 7.19
Duke Energy Corp DUK -0.65 6.76
Microsoft Corp MSFT 2.94 6.61
Infosys Ltd INFY 4.36 6.54
Consolidated Edison Inc ED 0.8 6.34
Pfizer PFE 0.26 6.31
Bank of Nova Scotia BNS 1.63 6.21
Boston Properties Inc BXP -4.22 5.87
International Business Machine IBM -3.16 5.75
Novartis ADR NVS -1.48 5.73
Starbucks SBUX 2.67 5.62
Ventas VTR 1.18 5.27
Wal-Mart Stores Inc WMT 2.34 5.02
Realty Income Corp O -2.51 4.67
Anheuser-Busch InBev SA/NV BUD 0.25 4.1
VF Corp VFC 5.61 3.82
Chubb Ltd. CB -0.89 3.65
BCE Inc BCE 2.67 3.62
Coca-Cola Co KO 2.03 3.26
Prudential Fin’l PRU -3.49 3.24
United Technologies Corp UTX -0.3 2.96
Mitsubishi UFJ Fin’l Grp Inc ADR MTU -4.66 2.92
State Street Corporation STT 0.35 2.92
UnitedHealth Group Inc UNH -0.45 2.87
Accenture PLC ACN -2.14 2.35
JP Morgan Chase and Co JPM -3.07 2.35
Southern Co SO -2.05 2.34
Dominion Resources D 0.88 2.27
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Wells Fargo and Company WFC -3.84 1.69
Marathon Petroleum Corp MPC 1.9 1.09
MetLife Inc MET -0.04 0.86
Walgreens Boots Alliance Inc WBA -3.86 0.8
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Intel Corp INTC -0.36 0.17
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Magna International Inc MGA 1.34 0.08
Hormel Foods Corp HRL -1.76 -0.03
Capital One Financial Corporation COF -7.67 -0.21
The Travelers Companies Inc TRV -0.84 -0.99
Total SA TOT -0.84 -0.99
AT&T Inc T -0.57 -1.15
Public Storage PSA -2.88 -1.16
Valero Energy VLO -2.44 -1.95
Simon Property Group SPG -6.71 -2.19
Ford Motor F -7.1 -2.39
Novo Nordisk A/S NVO -1.09 -2.56
Spectra Energy Partners SEP -2.39 -3.25
General Mills Inc GIS -2.25 -3.69
Agrium Inc AGU -0.18 -4.1
BB and T Corporation BBT -7.3 -4.3
Discover Financial Services DFS -3.87 -4.72
UPS UPS 1.46 -5.68
Schlumberger Ltd SLB -2.81 -6.37
GGP Inc GGP -6.76 -7.21
Toyota Motor Corporation TM -4 -7.32
Phillips 66 PSX 1.32 -7.59
Verizon Communications Inc VZ -1.77 -7.59
Exxon Mobil Corp XOM 0.85 -8.31
T. Rowe Price Group TROW -3.5 -8.69
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Hess Corporation HES -5.79 -22.2
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