I've Put My Money on This International Dividend Stock

Last summer, I pledged to put at least $4,000 of my own money behind 10 stocks. My goal was to build the World's Greatest Retirement Portfolio.

So far, the results have been outstanding. The $40,000 invested has returned $8,440 -- while an investment in the S&P 500 would have returned only $1,080 -- an outperformance of more than 18 percentage points!

Today, I'm going to tell you why PriceSmart (Nasdaq: PSMT  ) deserves a spot in any retirement portfolio. Below, I'll explain two key components to focus on for the stores. At the end, I'll offer you access to a special free report that has three more ideas for the perfect retirement portfolio.

How'd it do that?
PriceSmart is a near-clone of Costco (Nasdaq: COST  ) , operating in Latin America instead of the United States. Former Costco CEO Jim Sinegal actually learned everything he knows from Sol Price, and the company was formerly a part of Costco's corporate structure.

A funny thing has happened with PriceSmart over the past year: Margins have compressed, and the company has missed earnings expectations in three of the past four quarters. And yet, it has returned 38% versus the S&P's meager 3.6% since my original recommendation.

Compressing margins to drive growth
In part because it feels the heat from Wal-Mart (NYSE: WMT  ) and other market players entering the scene in Latin America, PriceSmart has adopted a new strategy to make its wholesale membership concept even more appealing. Already operating with thin margins, CEO Jose Luis Laparte has made it very clear that the company will be shaving prices even more in an attempt to drive traffic at stores.

As you can see below, this has shown in gross profit margins that have been significantly compressed.

PSMT Gross Profit Margin Chart

PSMT Gross Profit Margin data by YCharts

Though investors never like to see wholesalers cutting margins even thinner, the tactic seems to be working, as same-store sales have been up considerably over the past six months.

Month

Same-Store Sales Increase

November 2011 18.5%
December 2011 19.9%
January 2012 15.2%
February 2012 14.7%
March 2012 17.0%
April 2012 8.6%

Source: PriceSmart investor relations.

And before worrying that April's numbers represent a slowdown in business, there's a good reason for the lower numbers: The timing of Easter week -- or Semana Santa -- was significantly different this year. Traditionally, whole countries get the week off work and everything shuts down, so don't read too much into it. The revenue increases are truly impressive, and investors clearly believe in management's long-term strategy.

South America, here we come!
Beyond realizing that margins will be thinner, there's another key component to PriceSmart that investors need to monitor: the gradual push into South America.

Within the last year, the company set up its first store in Barranquilla, Colombia. Things have gone well enough there that it has purchased land and has plans to open two more stores in Cali, Colombia.

Though it might be difficult to break the stranglehold that Wal-Mart has in Brazil, there are still millions of South American consumers available in Venezuela, Peru, Chile, and Argentina, to name a few, for PriceSmart to tap. And remember, there are only 29 PriceSmart stores in existence, meaning there's tons of room for growth.

Clearly, with a valuation as lofty as it is today -- PriceSmart currently sports a P/E north of 30 -- investors are counting on the company's foray into the continent to go well.

A solid bet for your retirement
All of this ignores the fact that PriceSmart also offers a small 0.8% dividend. I'm not worried, though. The company is using its cash flow to finance expansion. When that expansion slows, it will be able to offer a better yield for investors.

I'm clearly excited about this international opportunity, but if you want further investment ideas for your retirement portfolio, I suggest you check out our latest special free report "3 Stocks That Will Help You Retire Rich." Inside, you'll get the names of three stalwart businesses that promise to be dominating their fields -- and rewarding shareholders -- for years to come. Get your copy of the report today, absolutely free!

Fool contributor Brian Stoffel owns shares of PriceSmart. You can follow him on Twitter, where he goes by TMFStoffel.

The Motley Fool owns shares of Costco Wholesale. Motley Fool newsletter services have recommended buying shares of PriceSmart and Costco Wholesale, and creating a diagonal call position in Wal-Mart Stores. The Motley Fool has a disclosure policy.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (1) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 31, 2012, at 12:10 PM, bigabe wrote:

    One would wonder how Walmart's profits will be hit after the illegal bribes they got caught trying to "break into" some of these markets as well.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1895376, ~/Articles/ArticleHandler.aspx, 9/2/2014 11:42:04 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement