International share swaps: 12 alternatives to UK shares

Alternatives to popular UK companies with a track record of dividend growth are available in the US and beyond.

Sticking with what you know is not a bad philosophy for investors, but that shouldn’t stop you from looking at overseas companies. It need not be a big step out of your comfort zone. For every familiar company listed on the London Stock Exchange, there are almost certainly several more in a similar line of business operating elsewhere.

You can widen your portfolio safely by considering profitable foreign alternatives that pay steady or rising dividends, so we asked four investment experts to suggest overseas alternatives to well-known British companies.

With Sainsbury’s shares under the cosh after the supermarket’s proposed merger with rival Asda was blocked on competition grounds, Dan Coatsworth, stockmarket analyst at AJ Bell, suggests Target, a more widely based US retailer with sales split almost evenly across five areas: beauty and household essentials, food and drink, apparel and accessories, home furnishing and decor, and hardlines. The latter includes items such as electronics, sports equipment and jewellery.

Adapting to change

Like most retailers, Target has had to adapt to the changing landscape and invest in both its physical and its digital channels. It is launching new brands, turning many stores into showrooms and ‘neighbourhood fulfilment’ centres, moving into new markets by opening new small-format stores, and investing in technology platforms to fulfil digital orders faster and more efficiently.

James Rowbury, research coordinator at Redmayne Bentley, sees parallels between the turnaround at UK supermarket Wm Morrison and that at Target, the eighth largest retailer in the US. He says it has capitalised on the rise of e-commerce, re-modelled its stores and increased loyalty perks to drive its sales growth back towards its peaks of 2013.

He says: “Contrary to its S&P 500 peer companies, Target has become somewhat of a dividend grower, not missing a hike for over 51 years. It has managed to increase its sales volumes through investment and adaptation, rather than price increases, illustrating a core organic growth which sees it well-placed for the unremitting changing consumer landscape.”

Coatsworth adds: “It is refreshing to see a retail business embrace innovation and execute major changes without any big hiccups. The benefits are already visible, with faster earnings growth.”

He also points to United Parcel Service, better known as UPS, as an alternative to Royal Mail. As the largest provider of domestic express parcel services in the US, it is in a superb position to benefit from a robust American economy. It also runs a large international express air network. “UPS is confident about growing earnings in both its US and overseas operations,” Coatsworth points out. “Capital expenditure is forecast to peak next year, before dropping considerably in 2021. And net debt is forecast to decline over the coming years thanks to impressive rates of cash generation.

Consistent dividend-raising US companies

Company Sector Stock exchange Years of dividend rises Share price ($) Yield (%)
Johnson & Johnson Medical NYSE:JNJ 56 141.20 2.6
Target Retailing NYSE:TGT 51 77.42 3.3
ExxonMobil Oil & gas NYSE:XOM 36 80.28 4.1
AT&T Telecoms NYSE:T 35 30.96 6.5
Texas Instruments Semiconductors NYSE:TXN 15 117.83 2.4
Telus Corp Telecoms Toronto:T 14 C$49.33 4.4
Duke Energy Electricity NYSE:DUK 13 91.12 4.1
Verizon Comms Telecoms NYSE:VZ 12 57.19 4.2
JPMorgan Chase Banking NYSE:JPM 10 116.05 2.6
Philip Morris Int Tobacco NYSE:PM 10 86.56 5.4

Notes: *Share price and yield interactive investor, as at 30/4/2019

Opportunities from scale

“On a global basis it services 1.5 million shipping customers and more than 9.1 million delivery customers daily. This huge scale creates earnings growth opportunities, as UPS can cross-sell small package, supply chain and freight services across its customer base.”

Chris Beauchamp, senior market analyst at IG, suggests US telecoms giant AT&T could be an attractive alternative to beleaguered Vodafone. He says: “With Vodafone labouring under heavy debt, rising infrastructure spending costs and a dividend cut, AT&T is a possible replacement offering international focus, plus a compelling media offering now that its merger with Time Warner is completed.” Beauchamp admits that in an age of streaming and content wars AT&T is not a cheap business, but it offers the prospect of international growth that is likely to outstrip that of Vodafone. In addition, the firm generated record free cash flows in 2018, while also managing to invest heavily in the business.

Although BP looks well-positioned, Beauchamp also thinks US giant Exxon Mobil may be another worthy contender for a place in an international portfolio – especially if global growth picks up, fuelling more demand for oil.

The world’s top company with treatments for diabetes-related conditions is the Danish firm Novo Nordisk, listed in Copenhagen and the US, Chris Bailey, founder of analyst Financial Orbit, points out. Since both types of diabetes are on the rise all round the world, with an estimated 422 million people affected, and as Novo Nordisk is continuing to come up with new products and treatments, it is a sensible alternative to large pharmaceutical stocks Glaxo and AstraZeneca. Bailey points to a good record of returning cash to shareholders through dividends and share buybacks.

Innovator in growth area

He says: “Recent results saw the company slightly improve its financial outlook, benefiting from continued product innovation and new treatment launches. While there are continued pressures on public healthcare budgets, the growth of the diabetes challenge with improved diagnosis will keep treatment demand high for the foreseeable future.”

Investors looking at consumer products could, Bailey believes, consider American company Colgate alongside Unilever and Reckitts. Colgate is the world leader in toothpaste, with a 42% global share. It has a third of the global market for manual toothbrushes, too. Sales are split pretty evenly between emerging and developed markets. He says: “Prospects look bright, with the company making positive comments about internal initiatives, including a relaunch of a reformulated version of Colgate Total toothpaste and ongoing efforts to improve pricing across its main markets, including China.”

Among miners, Billiton, Rio Tinto, Anglo American and Glencore remain listed in London, but Rangold Resources departed in December through a merger with Canadian-listed Barrick Gold – a combination described by Bailey “an enhanced entity both in size and via the reality of owning half of the world’s tier one gold mines”.  With the successful Randgold management team effectively put in charge of the new venture, he sees prospects as bright. 

The hunt for international income

UK income investors looking to diversify abroad should look in the first place for well-known multinational companies with a track record of raising dividends. Look for reliable companies operating in growth sectors, producing goods and services that will continue to be in demand. There is likely to be plenty of information and research on them on the internet, and they are among the small number of overseas stocks featured in the business sections of UK newspapers.

It’s only 11 years since the financial crisis but, surprisingly, there is a bank that has now raised its dividend for a decade and got back to where it was before the crunch. Step forward America’s biggest bank, JP Morgan Chase. The multinational investment bank and financial services company slashed its annual dividend from $1.52 to just 20 cents immediately after the full impact of the crash was realised, but it resumed its progressive dividend policy right away and has now reach an annual payout of $3.20, double the pre-crisis level.

It has generated record results in eight of the past nine years, including 2018 when it earned $32.5 billion in net income. Helped by president Trump’s tax cuts, the trend has continued, with profits of $9.2 billion recorded in the first quarter of 2019 – a record for a US bank.

As a manufacturer and distributor of medical and pharmaceutical products, Johnson and Johnson is about as immune to cyclical factors as it is possible for a company to be. Hence its record of continuous dividend increases for more than 50 years. The ageing population in developed countries plus a growing middle class in developing nations will mean increased demand for health products and a wider ability to pay for them if governments continue to squeeze their spending in this area.

Five logos of international shares

 

UK investors heard a lot about the US’s largest telecoms provider Verizon Communications indirectly through its tempestuous but successful joint venture with Vodafone. Verizon bought out its partner and has since fared the better of the two. Its run of increased dividends extends to 12 years, and it has become one of the world’s most profitable companies.

Ethical investors may baulk at the idea of putting money into a tobacco company, but Philip Morris International, which sells cigarettes in 180 countries, has raised dividends for the past 10 years since it was spun off from parent company Altria. It owns six of the world’s top 15 international brands, including Marlboro. Tobacco remains under increased attack from regulators, not least in the company’s home base in the US – but it’s a habit that is hard to kick, and vaping is giving the industry a new lease of life.

Some companies that are big in their own countries can be surprisingly little known in the UK. Take Duke Energy, for example. Founded more than a century ago, it has become the largest electricity utility in the US, with operations spanning the southeast and Midwest and serving 7.6 million electricity and 1.6 million gas customers. It also has a rapidly growing gas infrastructure arm and a portfolio of renewable energy assets. It used to have an international energy business, but this was sold three years ago to focus on domestic operations.

Duke pays quarterly dividends, which have increased year by year since 2005 and are likely to continue to do so considering the stability of the business.

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