Dividend Investing Ideas Center
Have you ever wished for the safety of bonds, but the return potential...
Bob Ciura Jan 26, 2016
Recently, news broke that the U.S. has lifted economic sanctions from Iran as part of the nuclear pact to which both countries agreed. As part of the agreement, Iran will curb its nuclear program in exchange for the U.S., United Nations, and European Union lifting economic sanctions.
This is a groundbreaking moment not just for Iran, but for the entire world. Iran, a country of 80 million people, can now have a greater presence on the stage of global commerce. This is good for the nation itself, which has demonstrated a desire to become less isolated, but there are also positive implications for the United States, and more specifically for American businesses.
The news will certainly have an effect on the global economy. Here are three dividend stocks that will benefit from the economic sanctions being lifted off of Iran.
First, perhaps the most important aspect of the deal is that Iran will be able to bring its oil to market. As a nation with significant oil supplies, Iran will finally be able to produce and sell its oil on the global market. Analysts believe Iran can produce as much as 500,000 barrels per day at full capacity. This would only add to an oil market that is already oversupplied, and Iranian oil entering the market would be a negative for future oil prices. As a result, U.S.-based consumer firms that typically benefit from lower oil prices could now benefit. In addition, if Iran opens its country to foreign industry, consumer goods stocks will also benefit from tens of millions of potential new customers.
As a result, investors should consider global consumer companies like Wal-Mart Stores (WMT ) and PepsiCo (PEP ). These are very large businesses with global reach, and both of them have made penetrating underdeveloped nations a strategic priority in recent years. For example, Wal-Mart’s international sales reached nearly $30 billion last quarter alone. The company is rapidly improving its profitability in emerging markets like Mexico. Operating profit for all of its international businesses grew 8.5% last quarter in constant currency, year over year. This was far better performance than the overall company.
Wal-Mart is also building out its e-commerce and small-store formats, both of which are perfectly suited to expand into new markets. Last quarter, Wal-Mart’s e-commerce and Neighborhood Markets small-store banner increased comparable sales by 10% and 8%, respectively, on a constant-currency basis.
For PepsiCo, its emerging-market businesses are leading the way for the company. These departments are putting up impressive growth figures in areas like Asia, Africa and Latin America. Consumers in these nations have really taken to PepsiCo’s food and beverage products, including its flagship Pepsi soda and its Frito-Lay snacks business. It stands to reason the company would do business in Iran as well, and that is now a possibility. Further, PepsiCo has a positive track record of success in new countries. Last quarter, the company’s organic revenue, which excludes currency effects, rose 33% in Latin America and 2.5% in Asia, the Middle East, and North Africa.
Both Wal-Mart and PepsiCo have raised their dividends for more than 40 years in a row, and both stocks yield 3% right now. That further makes them attractive picks for dividend investors.
Furthermore, one could make the case that U.S. automakers will also benefit from the U.S. lifting economic sanctions from Iran. With oil prices and global interest rates remaining low, there is even more incentive for automotive manufacturers to target emerging-market growth. General Motors Liquid error: internal is already doing that in places like China and is seeing good initial results.
2015 was the third year in a row of record global sales for GM, which has taken the No. 1 spot in South America and China. Sales in China rose 5% last year.
Due largely to success in the international markets, GM raised its full-year earnings forecast, reflecting its growth prospects. The company now expects $5.25 per share to $5.75 per share in 2016 adjusted earnings per share. To reflect its earnings growth, earlier this year GM raised its dividend by 6%. That brings its current dividend yield to nearly 5%, which is a very attractive yield for income investors. Potential growth in new markets like Iran, plus a 5% dividend yield, makes GM a good dividend stock to buy.
Iran has reached a landmark deal with the U.S., Europe, and the United Nations. Going forward, it will be open to new commercial opportunities globally. There are many multinational companies in the U.S. that would love to do business in Iran, including PepsiCo, Wal-Mart, and GM. These three are also top dividend stocks. They should each benefit from the economic sanctions being lifted off of Iran.
Disclosure: The author is long PEP.