1 Great Dividend You Can Buy Right Now

Dividend stocks are everywhere, but many just downright stink. In some cases, the business model is in serious jeopardy, or the dividend itself isn't sustainable. In others, the dividend is so low, it's not even worth the paper your dividend check is printed on. A solid dividend strikes the right balance of growth, value, and sustainability.

Today, and one day each week for the rest of the year, we're going to look at one dividend-paying company that you can put in your portfolio for the long term without too much concern. This isn't to say that these stocks don't share the same macro risks that other companies have, but they are a step above your common grade of dividend stock. Check out last week's selection.

This week, we'll turn our attention to our bellies and look at why Mondelez International (NASDAQ: MDLZ  ) could be the perfect stock for growth and income-seeking investors.

Source: gfpeck, Flickr.

The great dilemma
Let's face it: Not too many of us follow the "eat your vegetables" rule all too well, so it really shouldn't come as a surprise that snack foods have been a bright source of growth for food producers over the past few years. To take advantage of this growth, and to make the company more transparent for investors -- which often tends to unlock shareholder value -- Mondelez International was spun off from Kraft Foods (NASDAQ: KRFT  ) in September 2012, separating its U.S.-based and slower growth Kraft business from the potentially faster overseas growth in its Mondelez division.

Overall, it sounds pretty straightforward -- that Kraft would be the slow-but-steady low-growth company that dividend investors sit on, while Mondelez would pour on the growth. But, of course, it hasn't been nearly that easy.

One of the biggest challenges for Mondelez has been uncooperative foreign currencies, which, when translated back into dollars, actually reduces how much Mondelez is bringing in. Based on Mondelez's second-quarter results, the company delivered an adjusted EPS of $0.71; however, it also faced a negative-$0.05 headwind related solely to currency translation. Mondelez isn't alone, either. Kellogg (NYSE: K  ) , the cereal and snack maker, stuck by its full-year EPS guidance when it released its second-quarter results, but it also upped its estimate for negative foreign currency translation impact by $0.07 to $0.09 for the year.

Foreign currency translation isn't the only concern. Competition among snack-food companies is increasing by leaps and bounds outside the United States – so much so that activist investor Nelson Peltz, the head of Trian Fund Management, suggested that PepsiCo (NYSE: PEP  ) purchase Mondelez and spin off its beverage operations. The idea would make a lot of sense given the increased levels of competition between the two companies, but PepsiCo doesn't appear keen on the idea

The Mondelez advantage
So if currency translation is an earnings drag and competition is increasing, why buy Mondelez? The answer to that question relates back to why Mondelez was spun off in the first place: emerging-markets exposure.

Shareholders should be more than willing to deal with a few pennies in negative foreign currency translation if it gives them the opportunity to jump aboard some very recognizable brand names -- Oreo, Cadbury, and Nabisco among them -- in rapidly growing emerging-market countries such as China, Russia, and Brazil. Revenue from emerging markets, led by the BRIC countries, jumped 9.7% sequentially in its second-quarter results. Furthermore, the company's Power Brands segment (Oreo, Cadbury, Chips Ahoy!, and Stride gum, to name a few) collectively grew by 7.9% which is double the company's average growth rate.

Where I think Mondelez offers its greatest advantage is in its Latin American and Eastern Europe/Middle East operations. Latin American revenue was pretty much flat in its latest quarter, yet its Power Brands grew by 14% in the region from the previous year. Eastern Europe and the Middle East, however, was its most robust growth region, with net revenue rising 7.7% and Power Brands gaining 15.6%.

This brings me to another key point for why Mondelez is an intriguing buy: organic growth! Mondelez isn't trying to scoop up another company every six months to boost its top line overseas -- it's doing it almost entirely from organic growth. Mondelez has practically perfected passing along price increases (there's a tongue twister for you!) to overseas consumers as food inflation rises while being able to fall back on the worldwide power of its brand-name products as justification for the increase. With solid pricing power, all Mondelez has to do is provide a good mix of snacks and beverages on supermarket shelves to make its top and bottom lines grow.

Show me the money, Mondelez
I know what you're probably thinking: "Kraft Foods is the dividend play here!" If we look at this from a pure yield standpoint, then yes, it is. However, if you would like your dividend stocks to show signs of growth so your share price has a shot at increasing along with your dividend, then Mondelez sure looks like the better choice of the two.

To begin with, Mondelez does a phenomenal job of taking care of its shareholders. Announced during the second quarter, Mondelez bolstered its share-repurchase program from just $1.2 billion to a whopping $6 billion through 2016. To put this in a different context, based on Mondelez's closing price on Friday, the company could repurchase about 195.6 million shares of its own stock -- roughly 11% of its outstanding share count -- and drop its forward P/E of 17.8 down below 16. Mondelez is making it very clear that boosting shareholder value is important to this management team.

Where Mondelez can really tack on value, though, is through its dividend. As you'll see, the big drop-off last year relates solely to the spinoff:


Source: Nasdaq.com.
*Assumes payout of $0.14/quarter for remainder of 2013.

Even during the Great Recession of 2009, Mondelez/Kraft was able to maintain its dividend despite the financial catastrophe that was unfolding around them. Also in its second quarter, Mondelez announced that it would boost its payout by 8%, or $0.01, to $0.14 going forward. The new projected yield based on its revised payout is 1.8%.

Foolish roundup
With Mondelez, growth and income investors are getting the entire package. They're getting exposure to rapidly growing emerging-market economies from a snack food and beverage perspective; they have well-recognized brand names to help buoy cash flow and allow Mondelez to pass along price increases with relative ease; and they have a company that may buy back up to $6 billion of its own shares through 2016 with a payout ratio of less than 33%, making dividend growth all but a certainty. I don't know about you, but that sounds like a tasty recipe for a great dividend stock to me!

Why should you love dividend stocks so much? Because they can make you rich -- it's as simple as that. While they don't garner the notability of high-flying growth stocks, they're also less likely to crash and burn. And over the long term, the compounding effect of the quarterly payouts, as well as their growth, adds up faster than most investors imagine. With this in mind, our analysts sat down to identify the absolute best of the best when it comes to rock-solid dividend stocks, drawing up a list in this free report of nine that fit the bill. To discover the identities of these companies before the rest of the market catches on, you can download this valuable free report by simply clicking here now.

Why should you love dividend stocks so much? Because they can make you rich -- it's as simple as that. While they don't garner the notability of high-flying growth stocks, they're also less likely to crash and burn. And over the long term, the compounding effect of the quarterly payouts, as well as their growth, adds up faster than most investors imagine. With this in mind, our analysts sat down to identify the absolute best of the best when it comes to rock-solid dividend stocks, drawing up a list in this free report of nine that fit the bill. To discover the identities of these companies before the rest of the market catches on, you can download this valuable free report by simply clicking here now.


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