3 shares to give your portfolio some international diversification

Diversification is one of the key aspects to investing. Having a portfolio of just Commonwealth Bank of Australia (ASX: CBA) and the other big four banks isn’t diverse at all.

Having a portfolio of Westpac Banking Corp (ASX: WBC), Telstra Corporation Ltd (ASX: TLS), Wesfarmers Ltd (ASX: WES) and Suncorp Group Ltd (ASX: SUN) is a lot better with its diversification of industry, but it’s very Australian-centric.

You could decide to get your overseas diversification from an overseas-focused listed investment company or exchange-traded fund such as MFF Capital Investments Ltd (ASX: MFF) or the Vanguard All-World ex-U.S. Shares Index ETF (ASX: VEU).

However, if you want to remain in complete control of the shares you own then you could choose businesses on the ASX that generate a significant amount of revenue overseas.

Here are three suggestions:

Amcor Limited (ASX: AMC)

Amcor is a global packaging business, it produces rigid plastics and flexibles packaging of common household and consumer goods.

The world is becoming increasingly globalised and that is good news for Amcor. It earns more than 90% of its profit from overseas, making it a very global company.

In its report for the six months to 31 December 2016 it reported that first-half year profit after tax (but before significant items) increased by 1%, however earnings per share was down 5%.

Amcor is currently trading at 21x FY17’s estimated earnings with an unfranked dividend yield of 3.32%.

Ansell Limited (ASX: ANN)

Ansell is the company behind the industrial safety gloves. It was also the owner of condom brands Ansell Lifestyles and Skyn, however it recently sold that segment of its company for US$600 million.

The business earns around 5% of its revenue in Australian dollars, which makes it a great option for overseas diversification. In its report for the six months to 31 December 2016, it revealed that earnings per share had grown by 4.4%

Ansell is currently trading at 18x FY17’s estimated earnings with an unfranked dividend yield of 2.35%.

Cochlear Limited (ASX: COH)

Cochlear is the company behind the Cochlear hearing aid implants.

Being a healthcare company means Cochlear’s earnings are much more defensive than most other companies. It is growing its recurring revenue as well, meaning it is becoming even more defensive.

The business earns 48% of its revenue from the Americas, 18% from Asia Pacific, and 34% from Europe, Africa and the Middle East. Clearly, this makes it one of the most globally diverse blue chips on the ASX.

In the six months to 31 December 2016 it reported that revenue had grown by 4% and earnings per share had grown by 18%.

Cochlear is currently trading at 40x at FY17’s estimated earnings with a grossed-up dividend yield of 2.3%.

Foolish takeaway

None of these stocks are trading cheaply, so I wouldn’t buy them at today’s prices. They would all need to be at least 20% cheaper for me to consider buying shares in each of them.

The above businesses aren’t the only ones with overseas earnings, CSL Limited (ASX: CSL) and Macquarie Group Ltd (ASX: MQG) are options too.

However, most of them have very low dividend yields. This stock has a large fully franked dividend and is expanding in Asia and the USA, it could be the perfect choice for income and international diversification.


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Motley Fool contributor Tristan Harrison has no position in any stocks mentioned. The Motley Fool Australia owns shares of Telstra Limited and Wesfarmers Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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