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No. of Recommendations: 2
As Denny points out Nestlé is a Swiss company, not a French company. The last time I checked, there are no Swiss withholding taxes applicable to U.S. ADR holders.

Nestlé raised its dividend by about 15% annually over the last five years. However, I don't think it's realistic to expect this to continue for much longer as earnings' growth was around 6.4% for the same period. If the company does raise the dividend by another 15% next year that will put the pay-out ratio at 64% of trailing earnings.

The share price has been steadily rising, with ebbs and flows, since Spring '09 and a P/E of 15 for a good company that has grown earnings at 6.5% for the the last five years seems to me a fair and normal valuation. All things being equal, and provided the next five years mirrors the past five, then a reasonable expected return at the present share price would be around 10% a year (earnings' growth + dividends). For what it might be worth Morningstar gives Nestlé three stars: Fairly Valued. On a risk/reward basis this might be somewhat attractive, but none the less, a conservative choice.

An additional issue for US holders is the currency risk as the exchange rate between the Swiss franc and the US dollar fluctuates.

As for the earnings confusion, from the annual report:

Earnings per Share (Swiss Francs)

Underlying (c) 2.41 2.80 2.82 3.09 3.32

Total (a) 2.39 2.78 4.87 2.92 10.16

2006 2007 2008 2009 2010

(a) 2010 figure is not comparable as it includes a one-off gain
on the disposal of the remaining interest in Alcon.

(c) Profit per share for the year attributable to shareholders
of the parent before impairments, restructuring costs,
results on disposals and significant one-off items.
The tax impact from the adjusted items is also adjusted for.

Snip from Morningstar:

Nestle is the largest food and beverage company in the world. The firm generates sales of more than CHF 100 billion through its diverse product portfolio, which includes brands such as Nestle, Nescafe, Jenny Craig, Perrier, and Pure Life. Nestle also owns just more than 30% of French cosmetics firm L'Oreal. In January 2010, the firm sold its 52% stake of Swiss eye-care company Alcon to Novartis in a $28 billion deal.

Nestle's large global distribution network and well-known brands have generated a narrow economic moat. Despite these competitive advantages, we think Nestle's growth opportunities will be limited to developing and emerging markets, rather than developed countries, where competition is increasing from low-priced brands.

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