Coca-Cola is a Stock for 'The New Normal'
Jonathan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Getting used to high unemployment and low economic growth in the United States is acceptance of what has been termed "The New Normal;" and it's probably not a bad idea for investors. On January 2, 2013, $560 billion in budget cutbacks and tax increases actuate from the budget agreement reached in Congress and signed into law by Obama, which will send the US economy over a "fiscal cliff." There is virtually no chance a new budget accord will be reached before the elections in November. Economists are predicting even lower economic growth in the United States for 2013, as a result.
That does not mean that investors cannot profit. While the United States economy will still be moribund, many around the globe will be expanding. Economic growth in China this year is higher by more than 7% and up more than 5% in India. During the Great Recession, the consumer class in emerging market nations continued to expand. Companies with a strong global presence and a prominent brand name will perform the best, over the long term.
Paramount among the investment considerations should be a high profit margin and a sturdy dividend income framework. As legendary investor Jack Bogle, founder of the Vanguard group and creator of the world's first index mutual fund, noted in his book Enough, more than 40% of the historic total return of an equity has emanated from its income component. Needed to provide for a sound dividend structure is a solid profit margin.
Total SA (NYSE: TOT) is a French oil company that is very aggressive in securing new opportunities around the world with operations in more than 130 countries. Year to date, it is up by 9.25%. While the average dividend paid by a member company of the Standard & Poor's 500 Index is around 2%, the dividend yield for Total SA is 6.15%. With a modest dividend payout ratio, there is ample cash flow for increasing the dividend or initiating stock repurchase programs. With a profit margin of 6.27%, the forward price-to-earnings ratio for Total SA is just 6.96. Another bullish indicator for Total SA is the petite short float of just 0.34%: few are betting that it will fall as a short float of 5% is considered to be troubling.
Based in London, Unilever (NYSE: UL) is a consumer goods company with a global reach. The bulk of its revenues emanate from emerging market countries. From its profit margin of 9.48%, Unilever pays a dividend of 3.39% to its shareholders. Up 9.80% for 2012, there is only a short float of 0.06% on Unilever.
Kraft Foods (NASDAQ: KRFT) is another consumer-oriented conglomerate, offering food items ranging from Oreo cookies to Tang beverages to consumers in approximately 170 countries. Year to date, Kraft is up 11.44%. A Warren Buffett favorite, Kraft Foods has a dividend yield of 2.83%. The company has a profit margin of 6.67%. There is just a 1.02% short float for Kraft Foods.
Another Warren Buffett favorite is Coca-Cola (NYSE: KO), the beverage giant. Coca-Cola has operations in every country in the world except for North Korea and Cuba. A dividend aristocrat, Coca-Cola pours a dividend stream of 2.49%. The profit margin of 18.49% easily supports that yield and will provide for a continual dividend growth, as it has for years.
Based in Hong Kong, China Mobile (NYSE: CHL) is the world's largest mobile phone company. Anything big that happens with mobile phones in China, there will be a part of it for China Mobile, including the iPhone. That market presence provides China Mobile with a profit margin of 23.86%. From that, China Mobile pays its shareholders a dividend of 3.67%. Up 22.66% for 2012, there is an inconsequential short float of only 0.16% for China Mobile.
According to "Winning the $30 Trillion Decathalon," a recent report by McKinsey & Co., the global consulting firm, consumption in emerging market nations will reach an annual amount of $30 trillion by 2025. That will be about half the global economy. Firms that will profit the most from that growth will reward its shareholders the best. Providing a healthy dividend income will make the total return of each even more robust.
jonathanyates13 has no positions in the stocks mentioned above. The Motley Fool owns shares of China Mobile and The Coca-Cola Company. Motley Fool newsletter services recommend China Mobile, The Coca-Cola Company, Total SA. (ADR), and Unilever. 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.If you have questions about this post or the Fool’s blog network, click here for information.