Asset Allocation through Conglomerates – Part 2

International Asset Allocation

In part one of this series, I looked at the basics of conglomerates. They offer unique pros and cons for dividend investors. I covered the benefits and downsides in last weeks post, but here is a brief rundown:

Related: International Allocation through Conglomerates

Pros of Internation Asset Allocation through Conglomerates

  • Diversification

  • Tax benefits

  • Foreign operations/international allocation

  • Growth through acquisitions

Cons of Internation Asset Allocation through Conglomerates

  • Complexity

  • Political risk

  • Breakup value

  • Currency risk

Now let’s look at a few international conglomerates. These companies offer international diversification and dividend payments. They all have DRIP programs available for individual investors. Just go to their company websites for more information.

It is really important to assess your location and desired retirement currency. For most people, the retirement currency will be the same as where they live but for others, it can be a different strategy.

Related: Easy Investing with Computershare

Individual Conglomerates

TickerQuoteP/EEPSYieldPayout RatioValue Metric
NYSE:KO$42.5322.3$1.912.64%58.64%0.53
NYSE:JNJ$89.2924.28$3.682.73%66.30%0.41
NYSE:CAT$88.3911.9$7.431.99%23.64%0.69
NYSE:GE$23.8916.7$1.433.18%53.15%0.48
For details on the Value Metric, see my stock screening technique.

The Coca-Cola Company

The Coca-Cola NYSE:KO company has operations worldwide. It’s the most valuable brand in the world and easily one of the most recognizable brands on the planet. According to Business Insider, 94% of the world’s population recognizes the Coca-Cola brand.

Besides the flagship brand, KO sells sparkling drinks, juices and juice drinks, and ready-made tea and coffee. It also owns the Sprite and Fanta brands. According to their company site, KO operates a global bottle partnering system in over 200 countries. This franchise system is the backbone of Coke’s global business strategy.

KO is a dividend aristocrat, it has paid out every quarterly since 1920. And it’s raised that dividend every year for the past 50 years.

Johnson & Johnson

Most of us are familiar with Johnson & Johnson NYSE:JNJ through common household products like shampoo and conditioner. But JNJ also operates 275+ subsidiaries in over 60 countries.

The company employs a strategy of moving patent ownership to low or no-tax countries. This has been very profitable. According to Bloomberg, JNJ saved over $2 billion in taxes in 2012 by investing in foreign subsidiaries.

Johnson & Johnson raised its dividend every year for the past 50 years. As you can see from the table above, it has a strong 66% dividend payout ratio. This is a new development, the payout ratio was around 35-40% just a few years ago.

Caterpillar Inc.

Another famous brand, Caterpillar NYSE:CAT is a global conglomerate that makes and sells a variety of heavy industrial equipment. It sells over 300 products including tractors, diesel engines, construction and mining equipment, gas turbines, and trains. It also runs a Financial Services division.

CAT has operations in over 180 countries. According to its site, over half of its sales are foreign and it has over 500 locations worldwide.

Caterpillar paid out a cash dividend every year since 1925.

General Electric Company

General Electric NYSE:GE operates in over 130 countries. It’s large, complex, and has multiple businesses spread across different industries. These include Water & Power, Oil & Gas, Energy Management, Aviation, GE Capital Services, and Healthcare.

GE has faced criticism for keeping a hoard of cash overseas. They also paid no American income tax in 2010, which raised some questions. According to its company site, GE has paid a quarterly dividend for more than one hundred years.

Any of these companies are possibilities for dividend investors looking for some international exposure. These conglomerates all have solid dividend payment history. But the complexity of their foreign operations can make them difficult to understand. Just be aware of the risks before committing capital.

About the Author: Mario Favela is a freelance content writer living in Austin, Texas. He blogs about investing and personal finance at Gator Finance.

DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.

DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.

Image: Master isolated images / FreeDigitalPhotos.net

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