In 20 years’ time, the world is likely to look quite different to how it does today and one thing in particular that I think will be different is that emerging market countries such as China and India will be far more dominant than they are now.
As such, if you’re investing for the long term, I think it’s a good idea to have some portfolio exposure to companies that are focused on selling goods and services to emerging market consumers, as this should provide a long-term growth driver. With that in mind, here’s a look at two of my favourite FTSE 100 dividend stock emerging market plays.
Financial services group Prudential (LSE: PRU) is a fantastic dividend stock for emerging markets exposure, in my view. That’s because the company has significant insurance and asset management operations in Asia, operating in 14 markets across the region. Already, the group already has 15m life insurance customers in Asia.
Over the next 20 years, the wealth of citizens across Asia looks set to grow significantly, with many people moving into the middle-class wealth bracket. And this means that demand for financial products, such as savings accounts, investment funds, and insurance products should continue to grow. Prudential, with its strong reputation across Asia, looks well placed to capitalise. In China, the group is already a major player in the financial services space, however, its penetration is still under 3%, meaning there is substantial potential for growth.
Prudential shares have experienced weakness over the last 12 months on the back of trade-war uncertainty and for those with a long-term view, I think now is the ideal time to be accumulating the shares. The stock’s P/E is just 10.3 and the prospective dividend yield is 3.2%.
Consumer goods champion Unilever (LSE: ULVR) is another excellent dividend stock pick for those seeking emerging markets exposure, in my opinion. This is due to the fact that the group has moved to expand its presence across the world’s developing countries in recent years and now generates nearly 60% of its turnover from emerging market countries.
As consumers’ wealth rises, they often look to ‘trade up’ to products that are of higher quality. For example, they may upgrade from a generic soap to a branded one or from a supermarket-brand tea to a well-known tea brand. And that’s where I think Unilever should benefit, as its products such as Dove soap and Lipton tea are well known across the world and are likely to be highly appealing to aspirational emerging market consumers. Recently, the group has acquired Horlicks, which is huge in India, as well as Carver Korea, a leading Korean cosmetics company.
Unilever rarely trades cheaply as it’s the stock that everyone wants to own. Currently, its P/E ratio is around 20. However, given the dependable nature of the company’s earnings, and the emerging markets growth angle, I don’t think that valuation is unreasonable. The dividend yield here is just over 3%. From a 20-year view, I see a lot of appeal in the shares.
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Edward Sheldon owns shares in Unilever and Prudential. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK has recommended Prudential. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.