South Korea Ranks First in Dividend Growth 2018-2019

South Korea used to be one of the unattractive markets for dividend investors due to the low payouts by Korean firms. I have written about the low payouts in a few article before like here and here. In those articles I had suggested that income investors can avoid Korea. However decades of low payouts may be coming to an end as companies are paying out more of their earnings to shareholders due to tax and political reforms. As a result, Korea has become the top country in dividend growth rate for 2018-19 as shown in the chart below:

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Source: South Korea Courts Investors with Unbelievable Payouts by Frank Holmes, U.S. Global Investors

From the above article:

South Korea is very attractive right now, with stocks trading at cheap valuation multiples relative to those in neighboring countries. Gross domestic product (GDP) growth remains robust, rising 2.8 percent in the first quarter.

The Korean market has a reputation for having a low payout ratio, despite many of its multinationals being flush with cash, but that looks set to change. Pressured by the government to do more to attract and keep foreign investors, the countries’ top 10 firms paid out a record 7 trillion won, or $6.46 billion, to offshore investors last year. Samsung Group ranked first, its payouts rising a massive 45.6 from the previous year to total 3.91 trillion won.

According to CLSA estimates, based on FactSet data, Korea tops the list for dividend growth this year and next. The investment bank is looking for a 20 percent compound annual growth rate (CAGR), which would be a huge improvement over other markets around the globe.

Related ETF:

  • iShares MSCI South Korea Capped ETF (EWY)

Disclosure: No Positions

Comparing China Savings Rate vs. Select Other Countries

The savings rate in China is very high compared to other countries. The Chinese economy is manufacturing and economy-based while many developed countries’ economies are consumption based. This is one reason why savings rate tend to be low in developed countries.

The following chart shows savings rate in China vs. other countries:

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Source: Five Things to Know about US-China Trade, Manning & Napier

China has the highest savings rate while the US has the lowest rate. While there are a multitude of reasons for the high savings rate in China, two factors that make a difference are cultural and financial  factors. For example, in China children are expected to take care of their parents when they retire. As a result young Chinese not only have to save for themselves but also for their parents. In the US, personal freedom and independence is highly important and parents do not expect their children to support them financially at old age.

Another point to remember is that the social safety is weak or non-existent in China especially in regards to pensions. Hence Chinese are indirectly nudged to save higher portion of their earnings for use in retirement. In the US, social security ensures retirees have some of income during retired life.

Countries With the Most FDI Inflows

The top ten countries with the most Foreign Direct Investment(FDI) in 2017 are shown in the chart below:

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Source: Countries With Most FDI In 2018, Global Finance

The US was the top ranked country for FDI with a total amount of $311 billion. China came in second with inflows of $144 billion.

The majority of the countries in the above list are developed countries with the exception of China, Brazil and India.

Consumer-Staples Stocks Look Attractive For The Long-Term

The worst performing sector so far this year is the consumer-staples sector. Stocks of consumer staple makers such as cereal, toothpaste, soups, etc. have been hit hard due to a variety of factors. Rising costs of commodities, higher logistics costs, cheaper store-name or generic brands, consumers’ preference for healthier options, etc. are some of the reasons attributed to the downtrend in this sector. However extreme bearish views on the sector are not justified. After strong declines this year (12% thru April 24) the sector has become attractive at current levels. Investors with a long-term view of at least 5 years can consider adding stocks in a phased manner.

The trailing P/E ratio of S&P 500 sectors from a Journal article published on April 25:

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The third cheapest sector in the S&P 500 is the consumer-staples sector.

In addition, the sector also offers a solid dividend yield of 3% as shown in the chart below:

Source: Amazon Effect’ Stings Consumer-Staples Stocks as Pricing Woes Mount, WSJ

Investors have always found refuge in this sector during adverse market conditions. So the sector may enjoy a boost when there is a market downturn. Besides some of the fundamental factors favor holding consumer staples stocks. They not only offer a cushion to a portfolio during market corrections and offer a decent dividend yield they also offer consistent growth over the long-term. Despite the many threats based by them, people are not going to stop buying any of the items like toothpaste, paper towels, soups, cereal, etc.

From a recent article on General Mills at Barrons:

But there are bargains to be found in the sector. Consider General Mills (GIS), which has fallen 27% so far this year, to humble levels relative to earnings. At first glance, the drop seems deserved, because earnings growth has stalled, and the company recently paid what’s widely regarded as an ambitious price for Blue Buffalo, a fast-growing pet-food maker.

A closer look suggests sales trends are improving, thanks in part to new-product launches. General Mills has faced higher costs, but some of these are linked to growing pains, and are likely to abate soon. As for Blue Buffalo, investors might underestimate the payoff of expanding niche brands into mainstream stores.

“People said we paid too much when we bought Annie’s in 2014,” says General Mills CEO Jeff Harmening, referring to the organic-food brand. “We’ve doubled sales and tripled household penetration.”

As General Mills returns to growth, its stock could rise from a recent 14 times forward earnings projections to 16 times. That’s below the five-year average of 18 times, but enough to make 20% for investors, including the 4.5% dividend yield.

Founded as a roll-up of grain millers, General Mills went public in November 1928, less than a year before the crash that set off the Great Depression. While many companies went bust, it posted higher profits and dividends, in part by expanding from simple flour and meal to innovative pantry products such as Bisquick baking mix in 1931 and Kix puffed cornmeal cereal in 1937. Today, top brands include Cheerios, Betty Crocker, Pillsbury, and Häagen-Dazs. Snacks, cereal, quick-prepare meals, and yogurt together bring in 70% of revenue. Two-thirds of business is done via retail outlets in North America.

Until recently, packaged-food sellers were known for steady sales growth, but the industry is in upheaval. Sales of food eaten at home have grown only half as fast as food eaten out over the past five years. In grocery stores, perimeter items like fresh produce are growing faster than center-of-store items like canned soup. Upstart, independent brands such as Halo Top ice cream and Kind snack bars are booming. Investors worry that’s part of a lasting shift. Maybe a rising focus on health, or e-commerce, or millennial tastes have broken the power of big brands.

Not so, says Jefferies analyst Akshay Jagdale. His firm conducted a study of more than 1,400 consumers, eight Big Food chiefs, and sales data for 52 food and beverage categories. Its findings dispel some myths. For example, although shoppers are paying more attention to things like health benefits and social impact, overwhelmingly they say taste and price matter most. Brands remain important, including to millennials. Most leading brands — No. 1 or 2 in their categories — are growing. But emerging brands are taking share from nonleading brands.

In Jagdale’s view, recent sales challenges for Big Food came as companies pruned their portfolios and launched new products, and will soon give way to a return to modest sales growth, margin expansion, and higher valuations for innovative players. In February, he upgraded General Mills to Buy from Hold. His price target of $55 implies 25% upside from recent levels. Last month, Pablo Zuanic at Susquehanna Financial Group upgraded shares from Neutral to Positive, with a $52 target. “This scare about the balance of power shifting for food brands is overdone,” he told Barron’s this past week.

Source: General Mills Shares Are in the Bargain Aisle, Barrons

Some of the consumer staples stocks to consider are listed below with their current dividend yields:

1.Company: Kellogg Co (K)
Current Dividend Yield: 3.59%

2.Company: General Mills Inc (GIS)
Current Dividend Yield: 4.40%

3.Company: Mondelez International Inc (MDLZ)
Current Dividend Yield: 2.20%

4.Company: Campbell Soup Co (CPB)
Current Dividend Yield: 3.33%

5.Company: ConAgra Foods Inc (CAG)
Current Dividend Yield: 2.28%

6.Company: Kraft Heinz Co (KHC)
Current Dividend Yield: 4.34%

7.Company: Kimberly-Clark Corp (KMB)
Current Dividend Yield: 3.83%

Note: Dividend yields noted above are as of April 29, 2016. Data is known to be accurate from sources used.Please use your own due diligence before making any investment decisions.

Disclosure: Long GIS

Americans Spend 19% of Personal Expenditures on HealthCare

Healthcare is very expensive in the US to say the least. Unlike other developed countries healthcare expenditure account for a high percentage of national budget. At the micro level, individuals spend 19.3% of their personal expenditures on healthcare according to BEA data. Or to put it another way, in 2017 Americans spent about one fifth of their expenditures on healthcare.

The following chart shows the relentless rise in healthcare inflation from 1959 to 2017:

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Source: Health Savings Accounts: The Intersection of Retirement and Health Care, Franklin Templeton Investments