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Mondelez International Inc (MDLZ), Kraft Foods Group Inc (KRFT): One Great Dividend You Can Buy Right Now

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Dividend stocks are everywhere, but many just downright stink. In some cases, the business model is in serious jeopardy, or the dividend itself isn’t sustainable. In others, the dividend is so low, it’s not even worth the paper your dividend check is printed on. A solid dividend strikes the right balance of growth, value, and sustainability.

Mondelez International Inc (NASDAQ:MDLZ)

Today, and one day each week for the rest of the year, we’re going to look at one dividend-paying company that you can put in your portfolio for the long term without too much concern. This isn’t to say that these stocks don’t share the same macro risks that other companies have, but they are a step above your common grade of dividend stock. Check out last week’s selection.

This week, we’ll turn our attention to our bellies and look at why Mondelez International Inc (NASDAQ:MDLZ) could be the perfect stock for growth and income-seeking investors.

Source: gfpeck, Flickr.

The great dilemma
Let’s face it: Not too many of us follow the “eat your vegetables” rule all too well, so it really shouldn’t come as a surprise that snack foods have been a bright source of growth for food producers over the past few years. To take advantage of this growth, and to make the company more transparent for investors — which often tends to unlock shareholder value — Mondelez International Inc (NASDAQ:MDLZ) was spun off from Kraft Foods Group Inc (NASDAQ:KRFT) in September 2012, separating its U.S.-based and slower growth Kraft Foods Group Inc (NASDAQ:KRFT) business from the potentially faster overseas growth in its Mondelez division.

Overall, it sounds pretty straightforward — that Kraft Foods Group Inc (NASDAQ:KRFT) would be the slow-but-steady low-growth company that dividend investors sit on, while Mondelez International Inc (NASDAQ:MDLZ) would pour on the growth. But, of course, it hasn’t been nearly that easy.

One of the biggest challenges for Mondelez has been uncooperative foreign currencies, which, when translated back into dollars, actually reduces how much Mondelez is bringing in. Based on Mondelez International Inc (NASDAQ:MDLZ)’s second-quarter results, the company delivered an adjusted EPS of $0.71; however, it also faced a negative-$0.05 headwind related solely to currency translation. Mondelez isn’t alone, either. Kellogg Company (NYSE:K), the cereal and snack maker, stuck by its full-year EPS guidance when it released its second-quarter results, but it also upped its estimate for negative foreign currency translation impact by $0.07 to $0.09 for the year.

Foreign currency translation isn’t the only concern. Competition among snack-food companies is increasing by leaps and bounds outside the United States – so much so that activist investor Nelson Peltz, the head of Trian Fund Management, suggested that PepsiCo, Inc. (NYSE:PEP) purchase Mondelez International Inc (NASDAQ:MDLZ) and spin off its beverage operations. The idea would make a lot of sense given the increased levels of competition between the two companies, but PepsiCo, Inc. (NYSE:PEP) doesn’t appear keen on the idea.

The Mondelez advantage
So if currency translation is an earnings drag and competition is increasing, why buy Mondelez? The answer to that question relates back to why Mondelez was spun off in the first place: emerging-markets exposure.

Shareholders should be more than willing to deal with a few pennies in negative foreign currency translation if it gives them the opportunity to jump aboard some very recognizable brand names — Oreo, Cadbury, and Nabisco among them — in rapidly growing emerging-market countries such as China, Russia, and Brazil. Revenue from emerging markets, led by the BRIC countries, jumped 9.7% sequentially in its second-quarter results. Furthermore, the company’s Power Brands segment (Oreo, Cadbury, Chips Ahoy!, and Stride gum, to name a few) collectively grew by 7.9% which is double the company’s average growth rate.

Where I think Mondelez offers its greatest advantage is in its Latin American and Eastern Europe/Middle East operations. Latin American revenue was pretty much flat in its latest quarter, yet its Power Brands grew by 14% in the region from the previous year. Eastern Europe and the Middle East, however, was its most robust growth region, with net revenue rising 7.7% and Power Brands gaining 15.6%.

This brings me to another key point for why Mondelez International Inc (NASDAQ:MDLZ) is an intriguing buy: organic growth! Mondelez isn’t trying to scoop up another company every six months to boost its top line overseas — it’s doing it almost entirely from organic growth. Mondelez has practically perfected passing along price increases (there’s a tongue twister for you!) to overseas consumers as food inflation rises while being able to fall back on the worldwide power of its brand-name products as justification for the increase. With solid pricing power, all Mondelez has to do is provide a good mix of snacks and beverages on supermarket shelves to make its top and bottom lines grow.

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