There are many reasons why one should invest a part of their portfolio in good dividend paying foreign stocks. High dividend paying stocks can also be called as high-yield stocks. Some of the reasons are listed below. This list is nowhere near incomplete since there are probably a million other factors in support of investing in foreign bank stocks.
With the markets the way they are now some of you might wonder why in the world should I even talk about those financial stocks. The fact is that this “crisis” will also end and when it does the bank stocks will takeoff like crazy. So read on if you are an optimist..
Reasons for investing in foreign hi-yield bank stocks (ADRs):
1. Dividend Yield:
Many foreign bank stocks pay an average of 3% or more as dividends each year. Some even pay over 5%. One can find quite a number of banks that pay 5% or more dividends. This is high compared to most domestic US bank stocks. Dividends play a major in portfolio growth. For eg. – when the markets are down, dividends keep coming and if you reinvest them automatically, you get more shares. The trick here is to look for banks that have consistently paid dividends and have increased it over the years. Stocks like Bank of Novo Scotia (BNS), Barclays (BCS) Bank have increased dividends consistently.
Another fundamental reason that foreign banks pay higher dividends than US banks is that they do not try to reinvest most of their profits (net income) into the company and use it for growth.
2.Dividend Payout Ratio:
This means the percentage of profit that that banks pay out to shareholders each year. Look for stocks with payout ratio of 40% or more. The more the payout ratio is the better for shareholders since they can get the cash and reinvest it elsewhere or use it for their own personal uses. A bank that increases its payout ratio on a consistent basis is also a very good bank.
3. Pillars of the economy:
No matter which country you invest in, banks form the “pillar” of an economy. Without banks countries cannot exist. So whether a country is in recession (economy in doldrums) or a country produces only consumer goods and not any high-tech goods or a country has only natural resources, it needs banks to manage the economy and for people to invest and save their earnings. So its no brainer that one should invest in foreign ADR banks in any country that they are interestd in. For example, if you want to invest in the tiny country of Singapore, start with the United Overseas Bank. This trades on the OTC exchange with the symbol: UOVEF.PK
4. Long Term Growth
Top quality large banks have growth over the long term. So invest in them for many years. Its not uncommon for people in countries like Canada, UK hold bank stocks for generations and reap huge rewards. Many banks also expand into overseas markets to invest their excess cash reserves. For eg. Canadian banks like TD Bank, British banks like Barclays invest and grow in the US markets.
5. Stability:
Large high quality banks offer stability to one’s portfolio. There are many banks which are not “sexy” to own. But they move slowly and steadily over the long term. Just buy some for you portfolio and forget them for many years to make decent gains. Of course, in situations like today, bank stocks may seem like they do not offer any stability at all. But thats not true.
The reasons stated here are true for most foreign banks. However there are always exceptions and remember one cannot win all the time. Examples like Northern Rock of UK, Barings Bank come to mind. So do your own research and pick up some good quality ADR banks stocks today.:-)
See you here tomorrow.
Cheers !!
David
www.topforeignstocks.com
