3 international stocks with strong dividends and long-term growth potential

While US stocks are often among the most popular among dividend investors, there is considerable value to be found in international stocks right now. This is due to several factors, including a relatively strong dollar, the recent sharp outperformance of the US stock market, which has outperformed fundamental performance on several metrics, and concerns about geopolitical instability in certain international markets.

Below, we’ll cover three particularly intriguing international dividend stocks that could offer investors a powerful combination of attractive earnings and long-term growth.

#1. unilever

Unilever (UL) is a $130 billion global consumer goods company that manufactures and markets approximately 400 well-known brands in nearly 200 countries.

Unilever is currently focused on aggressively expanding its business in emerging markets in Asia such as India, China, Vietnam, Bangladesh, Pakistan and Myanmar, which hold promise due to their rapidly growing populations and burgeoning middle class.

Growth has slowed over the past four years due to temporary challenges such as currency issues in Latin America, the pandemic and high input cost inflation. However, management expects revenue growth to accelerate at a 3% to 5% compound annual growth rate going forward, and plans to drive earnings per share growth even further through margin expansion and share buybacks beginning in 2024, which they believe Unilever will make in the achieve annualized EPS growth of 6.0% over the next five years.

Unilever’s latest earnings results confirmed that the company continues to face strong inflationary headwinds. However, it was able to offset much of this headwind with price increases. Its 13 brands, which generate at least $1 billion in annual sales, saw sales grow 10.9%. However, the company’s operating margin shrank 230 basis points to 16.1% and earnings per share fell 2% on cost inflation.

As evidenced by the significant recent price increases, Unilever has a competitive advantage through the strength of its brands, which have enabled the company to generate strong and reliable free cash flows and remain resilient during recessions.

Unilever has an impressive track record of increasing its dividend for 41 consecutive years, reflecting its ability to execute growth initiatives effectively.

#2. GSK

GSK plc (formerly GlaxoSmithKline) (GSK) is a healthcare company specializing in pharmaceuticals, vaccines and consumer products, with offerings in areas such as central nervous system disorders, cardiovascular, respiratory and immune inflation. The company has annual sales of approximately US$35 billion and is incorporated in the UK.

We expect the company to deliver 3% annualized earnings growth through 2028, driven by expected gains in its new and specialty products and a return to vaccine sales growth. However, investors should keep in mind that the company’s dividend varies from year to year, making predictable growth unlikely in the future.

GSK’s revenue fell 29.2% in the fourth quarter due to currency effects, while adjusted earnings per share fell 7.2% to $0.64. For the full year, however, sales improved 13% at constant exchange rates with adjusted earnings per share of $3.81. Specialty drug sales declined 11% in the quarter but rose 29% for the year. Respiratory grew 22%, HIV product sales grew 21% and vaccine sales grew 7%. GSK expects EPS growth of 12% to 15% in 2023.

The company’s competitive advantages include high investments in research and development and intellectual property. With a dividend yield of 4%, ADRs down 23% over the past year, and solid and defensive growth expected in the coming years, GSK could deliver strong total returns for investors with relatively little long-term downside risk.

#3. Total Energies

TotalEnergies SE (TTE) is a fully integrated oil and gas company with a market capitalization of US$142 billion, making it the fifth largest company in the industry. The Company operates through four segments: Upstream, Downstream (mainly Refining), Marketing & Services, and Gas, Renewables & Power.

The company struggled to ramp up production between 2010 and 2014, but has since returned to a solid growth trajectory, increasing production by 8% in 2018 and 9% in 2019. However, due to the pandemic and OPEC production cuts, TotalEnergies production fell 5% in 2020 and 2% in 2021, but is expected to grow again in 2023.

TotalEnergies announced a significant oil and gas discovery off the coast of Namibia on April 26, 2022. The find could top 13 billion barrels, making it the world’s largest deepwater oil field. The company said it would announce more details at a later date. If TotalEnergies’ stake is at least 6 billion barrels, then it’s worth at least $100 billion, which is 60% of the stock’s market cap.

Management reported financial results for the fourth quarter of fiscal 2022 showing production increased 5% sequentially, but earnings per share declined 22% sequentially from an all-time high of $3.83 to $2.97 . Despite the decline in EPS, it was one of the best quarters in company history. TotalEnergies also announced a 7% dividend increase for 2023, and the company has repeatedly stated that its dividend is sustainable with Brent prices hovering around $40 million while its breakeven oil price is below $25.

TotalEnergies’ risk profile is bolstered by the fact that it outperformed its peers during the 2014-2017 oil market downturn due to its superior refining segment and strategic positioning. Earnings per share fell just 49%, while Exxon Mobil (XOM) fell 75% and other oil majors posted losses.

TotalEnergies kept most of its refineries while others sold theirs, allowing it to benefit from high refining margins. The company also produces only a small portion of the natural gas in the US, resulting in a higher average selling price. Eventually, TotalEnergies managed to bring production costs down to $5.5/barrel, almost half of its peers.

With a 5% dividend yield and strong dividend-per-share growth momentum, the company could be a great opportunity to gain diversified international energy exposure.

bottom line

International dividend stocks such as Unilever, GlaxoSmithKline and TotalEnergies can provide valuable diversification to US investors’ portfolios without sacrificing quality, income yield or long-term growth potential. In fact, thanks to the recent strong dollar and high market valuations in the US stock market, it might be particularly wise to increase allocation to quality international dividend growth stocks like those discussed here.