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Today I'm going to tell you about an international, dividend-paying stock that, within the next two months, I'll be putting $4,000 of my own money into. I'm so confident that my pick, with reinvested dividends, will outperform the market, that should I sell any shares within the next three years, I'll donate $100 to charity.
This is the third article in a series in which I'm writing about my retirement portfolio, which I'm dubbing "The Cheesehead Portfolio," in honor of my home state of Wisconsin. If you wish to see my first two selections for the portfolio, check them out:
Three years from now, I fully expect today's pick, PriceSmart (Nasdaq: PSMT ) , to handily trounce the market thanks in no small part to a growing, baby-boomer-inspired trend.
There's no doubt that the U.S. economy is one of, if not the, most mature in the world. Its days of rapid, heady growth may be long gone. Therefore, including companies with international exposure will be crucial to beating the market in the coming years.
In my search for the perfect international stock, I started in China. Although Renren (NYSE: RENN ) , China's version of Facebook, at first seemed tempting, a closer look at the numbers scared me away. Being further discouraged by the shenanigans taking place in China, I decided to check elsewhere.
Next on my list was Russia's version of Google, Yandex (Nasdaq: YNDX ) . Though I would love to think that it could be as successful as Baidu (Nasdaq: BIDU ) -- China's Google -- Russia has a population that's actually shrinking. Throw in the fact that I'm pretty unfamiliar with the Russian market, and it's simply not a recipe for success.
Taking a hint from Buffett
Warren Buffett is famous for only investing in companies that fall in his "circle of competence." If he doesn't understand how a company makes its money, he stays away.
I took a hint from Buffett when I finally chose PriceSmart. Last year, after having spent the past five years teaching at an urban D.C. school where students are in class for nine hours per day, my fiancee and I needed a break. Before coming to the Fool, we spent six months in Costa Rica.
While there, we noticed two things:
- There are lots of retired, American expatriates in Central America.
- When they want American products that aren't otherwise available, PriceSmart is the place for them.
First, a little history
Originally founded as Price Club in the 1970s, this company was in the wholesale business long before Costco (Nasdaq: COST ) , BJ's Wholesale (NYSE: BJ ) , and Wal-Mart's (NYSE: WMT ) Sam's Club were even on the scene.
In 1993, the Price family decided to merge their chain with Costco. A year later, Costco spun off its international rights into what is today's PriceSmart. Motley Fool co-founder Tom Gardner has made Costco one of his core holdings on the Stock Advisor service, so the fact that Costco DNA continues to be a part of PriceSmart bodes well for investors.
Today, PriceSmart operates 28 locations in 12 countries throughout Central America and the Caribbean. They also plan on expanding to South America with a location in Colombia this year. Such a move could be the start of expansion into the continent, which could drive growth for years.
A distinct clientele
Though the price of membership is only half of what it is in the United States, the demographics of Caribbean and Central American nations are vastly different than in the United States. Only the well-to-do find it beneficial to pay for membership. In addition, the price of goods isn't normally what attracts buyers to the store; taxes on imports usually make PriceSmart's offerings more expensive than if they were bought in the states.
What, then, is the draw for customers? It's simply that PriceSmart is the only place where customers can find certain products that are normally available in America. This, therefore, leaves North American expatriates -- particularly baby boomers retiring to a warmer climate -- as the demographic to focus on for continued growth.
According to CBS' MoneyWatch, a bit more than 500,000 retirees currently live abroad. With 79.6 million baby boomers looking to retire in the coming years, that number will increase dramatically. Central American and Caribbean nations offer affordable health care and living expenses compared with the United States. If you consider the fact that nearly half of the baby boomers haven't saved up enough to live stateside and maintain their standard of living, you've got an undeniable trend on the horizon.
Throw in the fact that PriceSmart pays a respectable 1.2% dividend, with a low 28% payout ratio, and you've got a pretty sweet deal for an international stock. Baby boomers will be retiring in droves, and unfortunately, many don't have enough to retire on. PriceSmart is situated to benefit from both trends. I encourage you to add the company to your watchlist today.
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