International Dividend Achievers for the Long Haul, Part 1
Greg is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The PowerShares International Dividend Achievers Fund (NYSEMKT: PID) is an ETF that consists of approximately 60 diverse, dividend-paying, international companies. Investing in PID is an excellent opportunity for an investor that is underweight international stocks to gain exposure to international markets while collecting a significant and growing dividend.
In order for a company to be included in the index, it must have a minimum of five consecutive years of annual dividend increases. Its constituents include a very impressive, select group of companies located throughout the world, including the U.S., the United Kingdom, Canada, Japan, Russia, and China.
Instead of investing in the index, some investors prefer to invest in a diverse group of companies within the index. In this article, I am highlighting two of my favorite PID constituents that I believe have long-term potential to provide significant returns through dividends and capital gains.
International Dividend Achievers for the Long Haul
Novartis (NYSE: NVS), based in Switzerland, is a global manufacturer and provider of healthcare products. Its business divisions include Pharmaceuticals, Sandoz, Alcon, Vaccines and Diagnostics, and Consumer Health.
The Pharmaceutical division had over $32 billion of sales in 2012, representing 57% of total sales. This division consists of a large number of successful products that include Gleevec/Glivic (treats chronic myeloid leukemia) with 2012 sales of $4.7 billion, Lucentis (treats age-related macular degeneration) with 2012 sales of $2.4 billion, and Sandostatin (treats acromegaly) with 2012 sales of $1.5 billion.
Similar to most pharmaceutical companies, Novartis has lost its patent exclusivity with some of its successful products, including its hypertension drug Diovan. However, Novartis has had a large number of very successful product launches to offset it, including Galenya (treats relapsing multiple sclerosis) and Anfinitor/Votubia (treats breast cancer). Galenya reached blockbuster status (annual sales exceeding $1 billion) in 2012 with sales of $1.2 billion, which was a 142% increase over 2011 sales. Anfinitor/Votubia is projected to achieve blockbuster status soon, with 2012 sales of $800 million, which was an 80% increase over 2011 sales.
Novartis has one of the most promising pipelines in the pharmaceutical industry, consisting of 138 potential products in various stages of clinical development, which include 71 new compounds and 67 new indications of existing compounds.
Through its Sandoz subsidiary, Novartis is a provider of generic and biosimilar products. This division had 2012 sales of $8.7 billion, representing 15% of total sales. In the upcoming years, Sandoz should benefit tremendously from sales in emerging markets, which have provided a boost to earnings recently. In addition, Sandoz is becoming a major player in the biosimilar market, with four promising biosimilar indications in phase 3 development.
Alcon, which Novartis acquired in 2011, is a global provider of eye care products with 2012 sales of $10.2 billion, representing 18% of total sales. Alcon's operating segments include Surgical, Ophthalmic Pharmaceuticals, and Vision Care. Alcon's innovative products include the Acrysof lenses for the treatment of cataracts, Azarga for the treatment of glaucoma, and Air Optix contact lenses.
The Vaccines/Diagnostics and Consumer Health divisions combined for a total of $5.6 billion, representing 10% of total sales. Novartis has the potential to experience significant growth in the Vaccines market as a result of the recent approval of Bexsero, a vaccine for meningitis B, and Flucelvax, for influenza.
Over the last decade, Novartis's sales have increased from $25 billion to $57.5 billion and its net income has increased from $5 billion to $9.5 billion. Its dividend growth has been impressive, increasing from $0.70/share to $2.53 over the last decade, resulting in a dividend yield of 3.6%. Although Novartis's payout ratio of 64% is higher than I typically prefer, I believe that Novartis will continue to significantly increase its dividend due to the earnings growth potential resulting from its robust pipeline.
Based on its diverse group of existing products, its top-notch pipeline of products in development, and its significant and growing dividend, I believe that now is an ideal time to invest in Novartis.
Textainer (NYSE: TGH), based in Bermuda, is involved in the intermodal container business. Textainer has a simple but effective business model, consisting of purchasing, leasing, and selling a wide variety of dry freight and refrigerated containers.
Textainer owns or manages over 2 million containers worldwide and sells or leases these containers to a customer base that includes the U.S. Military and a large number of international shipping companies.
Textainer's successful business model has resulted in excellent results over the last decade, with sales increasing.from $150 million to $487 million and net earnings increasing from $35 million to $207 million.
A Great Dividend Payer
Since its IPO in 2007, Textainer has increased its quarterly dividend from $.20/share to $.46/share, resulting in a dividend yield of 5.1%. In fact, Textainer has increased its quarterly dividend for 13 consecutive quarters. I anticipate that this streak will continue well into the future, due to its relatively low payout ratio of 45%.
Textainer performed well through the great recession and its large fleet of containers should be in high demand as the economy recovers. As a result, I believe that now is an ideal time to invest in Textainer.
The Foolish Bottom Line
A investor can achieve very rewarding returns over the long-term by investing in a high-quality, diverse group of international companies with significant and growing dividends. This can be accomplished by investing in the PowerShares International Dividend Achievers Fund or by investing in a diverse group of its constituents. Novartis and Textainer are two constituents of the index that can provide reliable dividends and attractive returns for your portfolio.
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Greg Williamson owns shares of Novartis, the PowerShares International Dividend Fund, and Textainer Group. The Motley Fool recommends Textainer Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!