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1.85 CHF dividend, usually raised in February. Last 5 dividend raises average about 15%. Estimated February dividend at 1.09 CHF/USD conversion should equate to 4.15% yield on today's ADR price of $56. Company has repurchased about 33 CHF worth of shares the past five years, about 20% of the market cap.
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1.85 CHF dividend, usually raised in February. Last 5 dividend raises average about 15%. Estimated February dividend at 1.09 CHF/USD conversion should equate to 4.15% yield on today's ADR price of $56.

1.85 x 1.09 = 2.016 * $56 = 3.6

by my calculation, at $56 a share, the estimated yield is 3.6%
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"Estimated February dividend"

1.85 x 1.15 x 1.09 = 2.32

2.32 / 56 = 4.14%

maybe the market is pricing in a 15% dividend increase, but i doubt it

is a 15% increase guaranteed? no. but, look at the past 5 years. i think it's likely. even a 10% increase would put the yield at 3.96%.
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NSRGY. How does one deal with the French tax withholding?
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From what I understand if you buy in a taxable account you can deduct the foreign tax.
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How does one deal with the French tax withholding?


I take my statement to the shooting range and use it as a target.

It doesn't change anything but I feel better afterwards. :)

Rich

ps: Just joking. I don't own any French companies.
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Longreits,

Any color on why Nestle seems so cheap? At first glance, it seems ridiculously cheap, at 5 times earnings per M*'s 2010 numbers. But, 2010 had a huge one-time gain on sales of securities in Alcon to Novartis. Backing that one-timer out, EPS still seems to be about $5.40 on a $USD basis. That brings it to a more sensible 10.5 PE. Still, that seems fairly cheap for a quality brand name. Especially with a yield approaching 4%. Historical PEs were mid to high teens pre-crisis.

That divi raise also seems pretty likely to me, given the Alcon security sale and a large cash influx. Cash & Short term investments are up 10B CHF in 2010 over 2009. There should be some of that mountain left for shaerholders! These numbers from 2010 are stale, though. Overall, it seems likely that some of that cash should trickle down to shareholders, especially with their history of divi raises.

Operating income is pretty steady; no real lumpiness apparent at all, even through the crisis. All the lumpiness shows up on the bottom line and comes from one-time beneficial items. Operationally, they look pretty predictable. Margins seem robust: 58% gross, with 15% operating margins. Net margins and ROE are distorted due to the one-timer, but if my quick calc after backing it out is right, 2010 ROE slightly exceded 20%, in-line with previous years. Net margin sits just south of 11%, up from 2009. Again, that's a guesstimate, since I'm having a hard time backing out that one-timer quickly. All those are 2010 numbers. TTM numbers seem a little softer, but again generally in-line with the last 5 years' performance. D/E is conservative, and bonds trade at very low yields; coupons on most debt are low as well. All in all, they seem relatively healthy and predictable. Is there something else going on that isn't apparent from the financials? Does something else have them in the dumps? Is this just a European risk thing? Has their sale of Alcon come under fire? After a quick glance, I'm surprised at their PPS.

Peter
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Nestle's full year 2010 earnings were 3.32, so at 1.10 CHD/USD, you could approximate a 15 multiple at $56 USD per share. I still think that's cheap for a company of this caliber.
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Nestle's full year 2010 earnings were 3.32.

Morningstar's numbers for the ADR aren't even close to that. 10.12 before the one-time income is removed. Guess they're way off. Thanks for the correction.
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I like Nestle.

After the housing bust, a reporter (I think I heard the story on the BBC world service) was doing a study on the role of the business schools in the financial industry. He was sitting in a classroom in Harvard, listening to an MBA class discuss Nestle.

Here they were, a bunch of 24 year olds, who had never run a business, ripping Nestle apart because they take 1 hour lunches where they drink wine in the company cafeteria and everyone gets 5-7 weeks vacation per year. Typical Swiss company.

Everyone was talking about how they could wring more profit out of the company.

The reporter sat there thinking something along the lines of: "Wait a second, Nestle has been a profitable business for 154 years. Something is terribly wrong when the premier business school in the U.S. doesn't even note that as a significant positive for the company."

One more thing. In the U.S. there has been huge momentum for Green Mountain Coffee due to their Keurig cups. In Europe, Nestle is the king of single-service coffee with their Nespresso service. The coffee runs about 0.35 Euro per serving for very good espresso. Way better than Keurig or any other single-serving coffee I've ever had.

sf
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The reporter sat there thinking something along the lines of: "Wait a second, Nestle has been a profitable business for 154 years. Something is terribly wrong when the premier business school in the U.S. doesn't even note that as a significant positive for the company."

sf


My family, near and far, arrived in Venezuela in the first half of the 20th century and they set up a couple of well run businesses. The heirs didn't show any interest in continuing in the businesses and the chocolate factory was sold to Nestle while the food industry was sold to Pepsi.

The chocolate factory is still going strong. The food factory went bankrupt. I had occasion to visit the food factory after it had been sold to Pepsi and the production manager lamented: "With your uncle I used to produce marmalade. Now I produce reports."

Pepsi went about reviewing the ingredients of all the products in order to increase their profitability but killed the taste and quality that were the attractions for the customer. My uncle would wander about the factory tasting this and that and he proved to be irreplaceable by business school graduates.

BTW, at the time, Pepsico International was under the leadership of John Scully who went on to fail at Apple Computer.

Denny Schlesinger
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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.


kelbon
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http://seekingalpha.com/article/248039-withholding-tax-rates...

Here is a table of foreign withholding tax

Switzerland is high at 35%
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Switzerland is high at 35%

Yes, the Swiss withholding rate is 35%, if you are a Swiss resident.

However, if you are a U.S. resident, due to the tax treaty, you pay 15%. The same tax rate as U.S. stocks. I just double checked with my brokerage. What I did learn however, was that dividends of Swiss companies that are held in IRA accounts are also taxed at 15% and not 0%. Why? I have no idea.

After the Swiss, U.S. based investors is by far the largest holders of Nestlé stock.

kelbon
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After the Swiss, U.S. based investors is by far the largest holders of Nestlé stock.

Yikes! I did it again. some kind of circuit malfunction I guess.

After the Swiss, U.S. based investors are by far the largest holders of Nestlé stock.
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@Denny, re: Swiss

duh-ohh. my bad. lol.

Working on the fly and mixing up with some Euro stocks with attractive dividends I've been coveting. Nestle is one of those. Have a coupla French stocks on the list too.

Every time I travel in Asia I see more of their product in hotels and stores. That's how I got into Wrigley -- made a killing on Wrigley before they got bought out.

In any case, laziness about figuring out the foreign tax implications have held be back on some. Thankfully, as I get grayer and thinner on top I'm blessed to have a high enough marginal rate for it to matter.
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