4 International Cos. Outdo U.S. Counterparts: Total, Sanofi, More

NEW YORK (TheStreet) -- With market volatility rising, many investors are tempted to turn homeward and focus their portfolios on U.S. companies. It's not a bad strategy, but is does miss the mark -- at least if you are looking for high-quality, low-volatility, solid dividend-paying stocks.

Total (TOT), GlaxoSmtihKline (GSK), Sanofi (SNY) and Royal Dutch Shell (RDS.A) are successful internationally based companies with a respectable performance record (lately they've been outstanding performers), good dividend yields and attractive valuations. What's more, they are as easily available to the U.S. investor as if they were domestic stocks. How?  Through American Depositary Receipts, or ADRs.

An ADR makes it as easy for investors to buy shares in a foreign company as it is to buy shares in a domestic one. The ADR is priced in dollars, trades on a U.S. exchange, pays dividends in dollars (the stock's custodian makes the exchange) and the owner of an ADR is not subject to foreign taxes.

ADRs are an often-underutilized tool in diversifying the typical investment portfolio, particularly in gaining international exposure. That said, not all ADRs are the same; as a rule I would avoid the over-the-counter market in favor of those listed on an exchange or quoted on NASDAQ. This is analogous to avoiding penny stocks and sticking with more established enterprises which meet stricter financial reporting standards.

As a side note, at our company we evaluate ADRs with the same criteria as we do domestically based companies. And, for full disclosure, Total, GlaxoSmithKline, Sanofi and Royal Dutch Shell are all part of our "Dividend Buster Program," which focuses on high-quality dividend-paying stocks. The portfolio also includes some great U.S. based companies, such as Johnson & Johnson (JNJ) and Duke Energy (DK).

Evaluating An ADR

Our Dividend Buster Program takes a very disciplined approach to selecting its holdings. We do not discriminate against international companies, but rather focus and seek out those companies that have the following criteria:

  • Strong balance sheet
  • Visible and predictable earnings
  • Above-category growth outlook
  • Dividend paying/raising

All four ADRs examined here meet the above requirements.

On page 2, we analyze these stocks.

 

Total, an energy company based in France, has posted a year-to-date return of 17.34%, compared to the S&P 500's 2.40%. Its dividend yield is 4.72% and it has a current-year price-to-earnings estimate of 11.34, along with an estimated long-term growth rate of 4.63%.

Another French-domiciled company, Sanofi, is a health care company that has posted a YTD return of 2.57%. Although the YTD return is in line with the S&P 500, the total return for the last 30 days is 6.46%, compared to the S&P's 1.04%. Its dividend yield is 3.60% and it has a current-year P/E estimate of 15.30, along with an estimated long-term growth rate of 7.55%.

Health care giant GlaxoSmithKline is based in Great Britain. Its YTD return is 6.44%, and it has a dividend yield of 4.62% and a current-year P/E estimate of 15.48. Interestingly, while it boasts an estimated long-term growth rate of 7.12%, it has an exceptionally low beta of 0.714.

Royal Dutch Shell is another category giant, but in the energy sector along with Total. Shell is based in the Netherlands, has a YTD return of 13.52%, a dividend yield of 4.76% and a current-year P/E estimate of 10.75. Its estimated long-term growth potential is even higher than Total's at 6.98%. It also has a lower beta than Total at 0.834 compared to 1.028.

If you are not using ADRs in your portfolio to gain international exposure, these four are all high-quality, buy-and-hold choices easily accessed via the New York Stock Exchange (ICE).

At the time of publication, the author held no positions in any of the stocks mentioned, though some of the author's clients hold the stocks.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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