If you are a dividend investor have you ever wondered the following:
Are there any foreign stocks in which I can invest and re-coup 50% of my original investment in dividends alone in 5 years?.
Well the answer is a resounding yes. There are plenty of stocks that will pay you lots of dividends – so much so that you can recover half your investment in just 5 years without doing anything. We did some research and our results are discussed below.
We looked at 5 foreign bank stocks that pay dividends. Our goal was see if the total dividends in 5 years per share was at least 50% of the cost basis of the stock price. The year we used was from 2003 thru 2007. The cost basis of the stock was the price at the close on December, 2002. We assumed that the investor bought the stock at the close on the last trading day of 2002. All prices and dividends are split-adjusted.
The five banks that we analyzed for this simple study were:
1. ING Groep (ING) – The Netherlands
2. Royal Bank of Canada (RY) – Canada
3. National Australia Bank (NABZY) – Australia
4. Banco Santander (STD) – Spain
5. Bank of Ireland (IRE) – Ireland
Out of these five stocks, four of them returned more than 50% in just dividends alone in 5 years. These four winner and their dividend returns are:
RY – 60%
NABZY – 57%
STD – 57%
IRE – 62%
The top stock is Bank of Ireland with total dividends of $12.40 and the cost basis of a share was $32.45. This works out to 62% returns in dividends. IRE has performed so well due to the tremendous growth of the Irish economy in the past few years.
The next top stock was RY with total dividends of $5.97 and the cost basis per share at$14.98.
ING came just a little of 50% at 45% – which is not bad. An investor who bought a share at $12.79 in December 2002 would have got $7.08 in dividends alone.
NABZY and STD were a tie with a return of 57%.
Conclusion:
It is possible to invest in high quality dividend paying stocks and recover a good portion of the original invest in just 5 years. The trick is to find winners like the above five. There are thousands of foreign stocks out there but not many can qualify to meet such criteria. If the calculation is extended to 10 years were are sure that many of these stocks would have returned the complete original investment amount to an investor.
Another “moral of the story” is that dividends are an important factor when looking at returns. Like we saw in the above study sometimes they contribute a good part of the total returns.
From the result of the study, we can also infer that the dividends and total returns will even higher if an investor reinvests the dividends instead of taking them out in cash. Together with reinvested dividends and capital appreciation some of these hi-yield stocks can return many times over the initial investment if the stock is held for long-term usually 5, 10 years or more.
Caution: Dividends are not guaranteed and can be reduced or cut at any time.This study just shows that it is possible to recoup 50% of a original investment if companies continue to pay dividends as in the past.
The results of this study can be replicated for sectors like utilities, REITs etc. Was this post useful to you?.Feel free to leave your comments/suggestions.
[tags]investing,adrs,dividends[/tags]
