2 British ADRs With Attractive Dividend Yields

Published Thu, 23 Jun 2016 12:15 CET by DividendYields.org

Many stocks of the London Stock Exchange also trade on stock exchanges like the NYSE or Nasdaq in the form of ADRs, offering a great opportunity to U.S. investors to capitalize on growth. 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. Of course, as there is always the risk of political events and macroeconomic instability, like a Brexit, one should be able to pick stocks that are offered at a relatively low price, keeping a long-term view.
This article discusses two UK ADRs that trade on the NYSE. Their average dividend per share is $1.24, yielding an average dividend yield of 4.04% at an average payout ratio of 54.6%. Although the stocks trade in different industries, the comparison is based on the fact that they are both foreign stocks trading on the U.S. market and have had significant returns over the past five years. AZN has returned 16.48% and IHG has gained 61.92%, suggesting that both stocks have a stable stock performance.

AstraZeneca and InterContinental Hotels Group 5 Year Stock Performance Graph
AstraZeneca PLC (ADR) (NYSE: AZN) is a London, United Kingdom-based biopharmaceutical company that engages in the discovery, development, and exploitation of prescription medicines for the treatment of a range of diseases related to the autoimmune, cardiovascular, infection, inflammation, gastrointestinal, metabolic, neuroscience, oncology and respiratory diseases. AstraZeneca has ongoing collaboration agreements with Astellas, Celgene Corporation, Eli Lilly and Company, FibroGen, French National Institute of Health and Medical Research (Inserm), Foundation Medicine, Inc., Heptares Ltd and Immunocore Limited, while its pipeline includes 146 projects with 125 in the clinical phase of development.

Q1 2016 Results: In the first quarter of 2016, AstraZeneca has made a significant progress towards the Total Revenue target of $45 billion by 2023. The company has increased its pipeline productivity, and has developed Growth Platforms. Revenues reached $6.12 billion from $6.06 billion, up 1.0% YoY due to an increase in Externalization Revenue. This has generated a gross profit margin of 83.7%, which is higher compared to 79.8% in Q1 2015. Total operating expenses dropped 0.9% YoY to $5.08 billion from $5.12 billion. Operating income reached $1.04 billion, up 11.3% YoY from $933 million, generating a net income of $646.o million, up 17.5% YoY from $550.0 million in the same quarter last year. Operating cash flow reached $1.2 billion, a remarkable growth from $72 million losses in the first quarter of 2015.

Dividend Strength: On February 5, AstraZeneca declared a semi-annual dividend of $0.95 per share, thereby reaching an annualized dividend of $1.90 per share. The dividend yield is 6.62% (at the time of the writing), significantly higher than the average dividend yield 2.29% of the Healthcare Industry, whereas the payout ratio is 83%. The Board of the company has adopted a dividend policy that aims to sustain dividend growth on an annual basis, taking into consideration earnings fluctuations and the changing market conditions. Since 2000, dividend growth is 271.8% or 17.0% annually.

Future Outlook: Through 2018, analysts estimated an average EPS of $2.38, up 3.5% from current EPS of $2.30 and an average dividend of $2.81 per share, up 47.7% from current DPS of $1.90. Given these estimates, the average payout ratio will be around 118%. In addition, through 2020, average earnings growth is estimated at 2.93% annually.

Name Price ($) 52 wk low 52 wk high 52 wk low % 52 wk high % Market Cap ($ b) P/E D/E Beta Payout Ratio
AstraZeneca 28.70 26.97 34.88 6.41% -17.72% 72.64 24.95 0.96 0.76 83%
InterContinental Hotels Group 39.58 35.76 52.03 10.68% -23.93% 7.75 6.42 4.01 1.33 26%

InterContinental Hotels Group PLC (ADR) (NYSE: IHG) is a multinational hotels company headquartered in Denham, United Kingdom, that engages in the ownership, management, franchising, and leasing of hotels. InterContinental Hotels Group operates hotels, resorts, and restaurants under the InterContinental, Candlewood Suites, Crowne Plaza, Holiday Inn, Holiday Inn Club Vacations, Holiday Inn Express, Holiday Inn Resort, Hotel Indigo, Kimpton, EVEN, HUALUXE, and Staybridge Suites brand names. The company’s network consists of approximately 5,000 hotels and 742,000 guest rooms in approximately 100 countries.

Q1 2016 Results: In the first quarter of 2016, InterContinental Hotels Group has expanded its luxury and upscale presence in major cities. The company has reopened InterContinental New York Barclay following a $180 million refurbishment program. Moreover, it has signed five additional landmark properties for InterContinental hotels and resorts. Compared to Q1 2015, the company’s first quarter 2016 results are as follows:

  • Revenues down 8.2% YoY to $888 million from $967 million
  • Gross profit margin 66.7%, up 15.1% YoY from 57.9%
  • Total operating expenses dropped 86.1% YoY to $110 million losses from $792 million
  • Operating income reached $998.0 million from $175.0 million, a 470.3% YoY increase
  • Net income achieved a remarkable growth reaching $855.0 million from $32.0 million
  • Operating cash flow reached $628.0 million, up 206.3% YoY from $205.0 million
  • EPS $1.08 from $1.03, a 4.9% YoY increase

Perhaps the only concern about InterContinental Hotels Group is the high debt-to-equity ratio of 4.01. This ratio indicates that the company has been borrowing aggressively to finance its growth and may face a burden of additional interest expenses in the coming quarters. On the other hand, IHG has successfully dealt with the challenging market conditions, driving occupancy levels at double-digit growth in Mexico and Canada. In the U.S. market, the company added 10,000 rooms to its pipeline, thus remaining competitive and sustaining growth in the Americas region.

Dividend Growth & Prospects: On March 3, InterContinental Hotels Group declared an annualized dividend of $0.58 per share, yielding 1.45% at a payout ratio of 26%, significantly lower than the average payout ratio 71% of the Hotels & Leisure Industry. In addition, the company’s dividend growth in the period 2013-2016 is 33.7% or 11.2% annually. On the other hand, InterContinental Hotels Group is set to deliver a cash dividend of $6.329 [the date remains to be declared.] In addition, analyst consensus estimates an average EPS of $2.45, up 12.7% from current EPS $2.17 and an average dividend of $1.15, up 99.4% from current DPS of $0.58. These forecasts produce an average payout ratio around 47.0% through 2018.