For the last five years the global economy has been sputtering along -- buoyed by emerging market growth but tattered by the financial crisis of 2008. Instead of accelerating ahead, in 2012 things actually slowed down as consumers in developed markets seemed to retrench and cut back.
This hurt many "dividend growth" companies, that is, companies known for consistently growing dividends. It especially hurt those in consumer sectors. For example, since 2003 McDonald's (NYSE:MCD) hiked its dividends by double- digit percentages each year, but this year its increase decelerated to only 5%. PepsiCo (NYSE:PEP) is another example, with its dividend growth slowing to only 4% last year and 5.5% this year. Both are examples of slowing growth with consumers eating out less or just going for cheaper options.
But some US-based blue-chip companies are still bucking the trend. And they all seem to have a few things in common: All are maintaining business in developed markets and growing nicely in emerging ones. Yes, despite the financial crisis and global slowdown, the emerging markets' story is alive and well and it is lighting a fire under those multinational names which can harness it.
These 3 are getting ahead
One great example is Johnson& Johnson (NYSE:JNJ). Emerging market revenue for J&J is charging ahead. China, India, Russia and Brazil are leading, with the latter two expanding by 19% and 21%, respectively. Pharmaceutical product demand is strong in Brazil. Orthopedic devices are in demand in Brazil and India. J&J's consumer products are expanding rapidly in India and newly acquired native businesses are bolstering consumer sales in Russia.
J&J expects sales to grow by 9.9% this year, which should all flow through to the bottom line. And sure enough, J&J boosted its dividend a by a cool 8.2% this year, too; a good bit higher than either McDonald's or PepsiCo.
Doing equally well is Kimberly-Clark (NYSE:KMB). Its moderate organic net sales growth of 3%-5% this year, most of which is in emerging markets, is helped by 70 basis points to 80 basis points of margin improvement. This company is maintaining its business while working on productivity. Combined, sales in China, Russia and Latin America are growing by 11%. Emerging market growth and productivity improvements are a potent combination. That's why management expects at least 7% earnings-per-share growth and this year boosted its dividend by 9.5%.
Rayonier (NYSE:RYN) is a shining example of out-sized dividend growth and a business model geared toward better performing markets, specifically Asia Pacific. Rayonier is a real estate investment trust which manages timberland. But it doesn't sell commoditized timber or fluff pulp.
Actually, the trust concentrates on high-performance fibers needed in everyday packaged goods, cigarette filters, tires, and consumer appliances. As more people in the developing world come "onto the grid," need for these goods will only increase. So Rayonier is not a commodity timber play but actually a bet on the global economy.
In a bid to focus itself toward Asia Pacific, this US-based company has been acquiring timberland in New Zealand. It now has more than 300,000 acres there.
As high-performance fiber demand increases in Asia, Rayonier has raised its dividend by 10% in 2012 and a fantastic 11% in 2013. Riding the tailwinds of emerging market growth, management believes it can grow its funds from operations by the high single digits for the foreseeable future. And with a dividend coverage ratio of only 67% this year, management should be able to continue these double-digit increases for awhile.
Continued emerging market growth amid a developed market pullback has created a sort of bifurcated market among the big multinational dividend names. Those names which have found success in emerging markets while maintaining sales and building on margins in the developed world are also the ones which are continuing to raise dividends nicely despite the slowdown. These are the companies which long-term income investors should seek out and buy whenever prices become reasonable.
Casey Hoerth has no position in any stocks mentioned. The Motley Fool recommends Johnson & Johnson, Kimberly-Clark, McDonald's, and PepsiCo. The Motley Fool owns shares of Johnson & Johnson, McDonald's, and PepsiCo. 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.