2 British ADRs With Strong Dividends

Published Wed, 20 Jan 2016 11:00 CET by TopYields.nl


For U.S. investors seeking to invest in non-U.S.-based companies, ADRs are the best solution. ADR stands for American Depositary Receipt and it represents 100% ownership to the foreign company. ADRs trade in over-the-counter (OTC) markets, are issued by U.S. depositary banks and are typically equity rather than debt or money market assets. ADRs can offer high dividends like common U.S shares and their prices mirror the price changes in the foreign market.
This article discusses Aviva and Smith & Nephew, two British ADRs that trade in different industries. Both companies deliver strong results and are leaders in their sectors. Furthermore, they both demonstrate momentum and are great dividend income picks both for the short- and the long-term.

Aviva and Smith & Nephew YoY Stock Performance Graph
Name ADR Price ($) 52 wk low 52 wk high 52 wk low % 52 wk high % Market Cap ($ b) P/E Beta Payout Ratio
Aviva 6.77 6.57 8.57 3.04% -21.00% 27.40 12.75 0.78 40%
Smith & Nephew 15.99 15.60 18.66 2.50% -14.31% 14.30 25.83 0.30 39%

Aviva (LSE: AV.L) (OTC: AIVAF) is a London-based long-term insurance and savings provider operating in the general and health insurance industry. Aviva offers insurance and savings products, both domestically and internationally, as well as fund management products and equity release services to individual, commercial and third-party investors. Formerly known as CGNU, Aviva uses a range of distribution channels, including direct sales, intermediaries, corporate partnerships, bancassurance, and joint ventures.

Improved Customer Proposition: Following the acquisition of Friends Life, Aviva has maintained momentum in the third quarter of 2015 with improved performance. In life insurance, the company’s Value of New Business (VNB) was up 25.1% for the eleventh consecutive quarter of growth. This, along with the Combined Operating Ratio (COR) being 94% of general insurance, indicates that Aviva continues to grow.

Dividend Strength: The integration with Friends Life has transferred GBP 23 billion assets while the run-rate savings is GBP 91 million towards the synergy target of GBP 225 million - ahead of plan. For those investors who seek increasing dividends over the coming quarters, but also in the long-term, Aviva is a great selection as the Friends Life integration has brought into the company’s register strong cash flows. In addition, Aviva is expected to raise its 2014 annualized dividend of $12.21 to $18.82 through 2017, in spite of declining Earnings Per Share (EPS) both in 2015 and 2016 by 27.42% and 11.90%, respectively. With the raising dividend, Aviva’s dividend yield is expected within the range of 4.48% to 6.01% for the period 2015-2017.

Aviva Actual
2014
Estimate
2015
Estimate
2016
Estimate
2017
%
2015-2014
%
2016-2014
%
2017-2014
Revenues ($ m) 16,684.43 22,704.27 23,469.40 24,735.17 36.08% 40.67% 48.25%
Operating Income ($ m) 1,466.16 1,676.67 1,930.37 2,077.46 14.36% 31.66% 41.69%
Net Income ($ m) 1,058.63 905.47 1,135.55 1,339.99 -14.47% 7.27% 26.58%
Earnings Per Share ($) 33.47 24.29 29.49 33.33 -27.42% -11.90% -0.40%
Dividend Per Share ($) 12.21 14.03 16.19 18.82 14.92% 32.60% 54.14%
Dividend Yield (%) 3.74% 4.48% 5.16% 6.01% 19.79% 37.97% 60.70%

Financial Flexibility: Aviva’s financial flexibility as a result of improved customer proposition is expected to help the company keep up with its dividend payouts. Its European operations, VNB up 11% to GBP 284 million, continue to grow, throwing up plenty of cash while Aviva’s Asian units are on for new investment opportunities. Thereby, Aviva is consistently one of the most solid dividend income picks, especially as a result of solvency among its peers.

Smith & Nephew (LSE: SN.L) (OTC: SNNUF) is a London-headquartered medical devices company operating in the advanced surgical devices sector. Smith & Nephew develops, manufactures, markets, and sells advanced orthopedic reconstruction, trauma, and sports medicine solutions, both domestically and internationally in over 100 countries, through its Advanced Surgical Devices and Advanced Wound Management segments.

Q3 2015 Revenues Breakdown: In the third quarter of 2015, Smith & Nephew reported strong results demonstrating above-market revenue growth in Knee Implants and sustained improvement in Advanced Wound Care. More specifically, the company reported revenues $1,105 million, down 3.7% from $1,148 million in Q3 2014 due to currency headwinds. Additionally, the company has a strong quarter in the U.S. market, its largest contributor, while it also stabilizes it business in Europe. In terms of results per segment, Advanced Surgical Devices down 3.2% and Advanced Wound Management down 4.8%. Yet, Knee Implants was up 3.5%, Advanced Wound Devices up 2.3% and Advanced Wound Bioactives up 2.4%.

Future Estimates: Smith & Nephew has relatively high gross margins, which suggest not only a differentiated product portfolio, but also a strict control on operating costs relative to its peers. The company’s successful operating model has delivered strong results in FY 2014 and for revenue growth is expected for the coming years. The table below portrays the estimated future performance of Smith & Nephew through 2017, including strong estimates for sustained dividend payments and increasing dividend yield. The FY 2015 results for Smith & Nephew plc will be released on Thursday 4 February 2016 at 7.00am GMT.



Smith & Nephew Actual
2014
Estimate
2015
Estimate
2016
Estimate
2017
%
2015-2014
%
2016-2014
%
2017-2014
Revenues ($ m) 3,115.17 3,121.92 3,283.85 3,453.21 0.22% 5.41% 10.85%
Operating Income ($ m) 1,008.03 935.83 997.91 1090.34 -7.16% -1.00% 8.17%
Net Income ($ m) 338.03 405.51 464.21 508.74 19.96% 37.33% 50.50%
Earnings Per Share ($) 0.38 0.42 0.49 0.53 10.71% 28.57% 41.07%
Dividend Per Share ($) 0.20 0.20 0.22 0.25 0.00% 10.00% 23.33%
Dividend Yield (%) 1.60% 1.91% 2.11% 2.33% 19.38% 31.88% 45.63%

Stock name Dividend Yield
Aviva 4.38
Smith & Nephew 1.84
Aviva 0.00
Smith & Nephew 0.00

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