Retirees these days are living longer than ever before. That means there's a need to not only sustain your income with dividends, but also to grow your nest egg by investing in high-quality businesses. While you can find a number of great companies in the U.S., some of the most attractive businesses, in terms of income and share-price appreciation potential, can be found outside the United States.
With this in mind, we conferred with three of our Foolish investors and asked them what international stock they'd suggest retirees take a closer look at. Topping the list were U.K.-based drug giant GlaxoSmithKline (GSK 2.14%), Swiss-based food behemoth Nestle (NSRGY +2.18%), and the "King of Beers," Belgium's Anheuser-Busch InBev (BUD +0.48%).
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How does a 5% dividend yield sound?
Sean Williams (GlaxoSmithKline): Retirees typically want two things in a stock: capital preservation and income. Interestingly enough, though, domestic markets aren't always the best place to find this combination. Sometimes the healthiest and safest dividends can be found by investing in international stocks. One such company that could be just what the doctor ordered for retirees is U.K.-based drug giant GlaxoSmithKline.
A few years ago, GlaxoSmithKline wasn't on the best footing. Its lead drug, Advair, which used to treat COPD and asthma, had lost patent protection and was facing the prospect of generic competition in short order. It was also struggling with the launch of a handful of next-generation COPD and asthma products designed to take Advair's place. It takes time to gain insurer approval for new products, as well as to educate doctors that there are new options available.
However, following this rough patch, GlaxoSmithKline is looking to be among the quickest-growing Big Pharma stocks. Both Breo Ellipta and Anoro Ellipta are delivering rapid sales growth as a result of clearing their hurdles with insurers and physicians. Through the first six months of the year, Breo and Anoro grew sales by 69% and 67%, respectively, on a constant currency basis. In fact, its new drug sales (including respiratory) appear to be more than outpacing the loss in revenue from weaker Advair sales, as well as weakness in other mature therapies.
Glaxo is also benefiting from its majority ownership in ViiV Healthcare, which has developed some of the most popular HIV maintenance medicines, Tivicay and Triumeq. The company's HIV business may deliver around $5 billion in sales this year, with a growth rate that could be as high as 20% since there is no HIV cure.
Lastly, GlaxoSmithKline completely transformed its business in 2015 by swapping assets with Novartis. The three-part deal sent Glaxo's oncology division to Novartis in exchange for Novartis' vaccine division, minus influenza, along with nearly $9 billion in cash. Lastly, the duo formed a joint venture for their consumer health products division. The result has been significantly lower costs for both parties, along with a healthier cash balance from the deal for GlaxoSmithKline.
With a dividend yield of nearly 5%, this steady drug stock could be just what retirees need in their portfolios.
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A bet on an emerging consumer class
Jordan Wathen (Nestle SA): Consumer packaged-goods company Nestle has weathered a general industry decline thanks to price increases that have helped fuel organic growth, which excludes the impact of currency fluctuations and mergers or acquisitions.
Nestle has a strong foothold in developed and emerging economies alike. Developed markets produced about 57% of sales last quarter, with emerging markets delivering the remainder. Given robust growth overseas, it shouldn't be long until emerging markets drive the majority of its sales.
Growth in Asia, Oceania, and Africa (Nestle calls it "Zone AOA") delivered healthy 4.9% real growth in product volume, helped by a 1.6% increase in pricing. Nestle's water business remains a powerhouse, with revenue growing 2.2%, almost entirely because of a volume increase and a 0.1-percentage-point price increase.
Relative to other packaged-goods businesses, Nestle's results have held up well, and its portfolio of brands in emerging markets should help lead growth for years to come. Nestle has a reputation as a corporate entity with a long-term horizon that often spans not years, but decades. Shareholders would be wise to take the long-term view with its shares, too.
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The king of beers
Keith Noonan (AB-InBev): With American flags frequently found on Budweiser's packaging and promotional materials, it's easy to think of AB-InBev as a domestic company. True enough, the Anheuser-Beusch part of the corporate equation was founded and operates in Missouri, but AB-InBev is headquartered in Belgium, and the company got even more international following its 2016 acquisition of Britain-based SABMiller. That's a global base of operation that reflects the company's hold on the beer market.
The company produces more than 25% of global beer volume and seven of the world's 10 best-selling beers. Of its roughly 500 brands, 18 produce annual sales of more than $1 billion, and it's hard to see how a competitor or market conditions might unseat the reigning king of beers.
Even in periods of economic uncertainty, beer consumption is unlikely to take a huge hit, which makes AB-InBev a business that's a good fit for retirement portfolios. The company's stellar brand portfolio and supply chain advantages also give it a moat that should help stave off competition and continue to capture the lion's share of profits in the global beer market.
The appeal of AB-InBev's stock is rounded out by a healthy returned income component. Shares yield roughly 3.5%, and while its current disbursement represents 102% of trailing earnings and 84% of trailing free cash flow, management has indicated that it will continue to boost its payout going forward. With price increases, cost-saving initiatives, and the SABMiller acquisition opening up opportunities in high-growth markets like Africa, the beer giant has avenues to increasing earnings that should pave the way for long-term dividend growth.
