UK is home to some of the big banks in this world such as Barclays, Standard Chartered Bank, HSBC Bank, etc.They have high dividend yields and are stable long-term investments.While these banks have gone down a lot in recent months due to the sub-prime mess in the US, they may pick up steam and perform well in the future. This year may not be great for these banks but they are still a good addition to any portfolio since they give high dividends.

Most British investors have these banks as part of their portfolio and it is highly unlikely that any of these banks will go bankrupt anytime. Another reason to invest in British banks is that the industry is highly consolidated with only a few dominant players in the market. Similar to Canada, a handful of banks control the major financial activities of the whole country.

List of the large banks in UK (in the order of Assets held):

1. HSBC Holdings plc
   
2. Royal Bank of Scotland
3. Barclays Bank
4. HBOS plc
5. Lloyds TSB
6. Standard Chartered Bank
   
7. Alliance & Leicester Bank

Out these 7 banks, only five are available to US investors via ADRs. The following are their tickers:

1. HSBC Holdings plc – HBC
2. The Royal Bank of Scotland Group plc – RBS
3. Barclays Bank – BCS
   
4. HBOS plc – HBOOY.pk
   
5. Lloyds TSB Group plc – LYG

StanChart (popular name for Standard Chartered) and A&L; (small name) are not listed in the US. RBS started trading in November,2007 at NYSE.

In the section below, you will see a brief description of each bank and a few critical financial measures to evaluate the stock.

1.HSBC Holdings plc – HBC

HSBC means “Honkong & Shanghai Banking Corporation”. Founded in 1865 to finance the growing trade between Europe, India and China, this bank grown to be the largest bank in UK and also one of the large banks of the world. Today the banks serves over 125 Million customers and has over 312,000 employees in over 80 countries.

HSBC is a “money center” bank with peers such as Bank of America of US, Banco Santandar of Spain and ABN Amro of Holland. HSBC acquired the sub-prime lender Household International a few years in the US and this been a drag on the bank.

Details:
Mkt Cap – $178 B
Shares out – 2.4 B
Yield – 4.52%
S&P; Rating = 3 Star

HBC is set to report earnings on March 3rd.

2.The Royal Bank of Scotland Group plc – RBS

Founded in 1727 and is one of the oldest banks in UK.Today the bank operates in more than 50 countries. RBS, Fortis and Banco Santander have formed a consortium last year to acquire ABN Amro. This a complex and huge M&A; deal in Europe.

Details:
Mkt Cap – $72 B
Yield – 12.05%
S&P; Rating = 4 Star

Next Dividend : Dividend of $0.46 with an Ex-Div. Date of March 5th.

3.Barclays plc – BCS

Started by goldsmith bankers in 1690s, Barclays is the 3rd largest bank in UK.Today serves over 25 Million customers in more than 60 countries. In 2007 the group generated a profit of £7.1bn (or about $15B).

Details:
Mkt Cap – $61 B
Dividend Yield – 4.94%
S&P; Rating = 4 Star

Next Dividend : Dividend of $1.75 with an Ex-Div. Date of March 5th.

The stock is down some 35% in the past 52 weeks since BCS tried to acquire ABN Amro and also due to the sub-prime mess.Barclays is the largest provider of ETFs in the world thru its brand name ishares. Many of the innovative ETFs come from ishares.

4.HBOS plc – HBOOY

HBOS has over 72K employees and has the biggest private shareholder base in the UK. Was formed by the merger of Halifax and Bank of Scotland.

Details:
Shares out – 3.8 B
Dividend Yield – 5.77%

The ADR for HBOS plc trades in the OTC market as HBOOY. The stock has been down more than 50% in the past few months due to the sub-prime scare in the UK housing market. But the UK housing market is totally different the US.So HBOS should do well once the crisis is over sometime this year.

5. Lloyds TSB Group plc- LYG

The history of Llyods bank dates back to 1765. Today the bank operates over 2000 branches and is a household name in the UK. Llyods has one of the most beautiful logos for a bank as seen in the left.

Details:
Mkt Cap – $51 B
Dividend Yield – 5.09%
S&P; Rating = 5 Star

Next Dividend : Dividend of $1.95 with an Ex-Div. Date of March 5th.

Some articles discussing the above mentioned stocks are:

http://deminvest.wordpress.com/2007/11/20/lloyds-tsb-group-lyg-high-diviedend-bank-stock-yields-7/

http://dayshark.blogspot.com/

http://seekingalpha.com/article/58095-four-opportunities-for-2008

http://seekingalpha.com/article/59852-the-short-case-on-hsbc-holdings

The following are some of the Latin American beverage company ADRs :

1. Ambev – Brazil – ABV
2. Coca Cola Femsa – KOF – Mexico
3. Quimles Industrial – LQU – Argentina
4. Vina Concha y Toro – VCO – Chile

In this list, ABV is one top performing stock.

Lets say you have $5,000 to invest now in a tax-free account such as a Roth IRA.You have a long-term investment horizon and you do not need to withdraw this money or the returns until you retire. In this article,I will discuss one way to make this money grow to a decent sum for those retirement days.

One way to invest this $5K is to save in a CD. As per Bankrate.com, the average yield on a one year CD is 3.09%. This is pathetic considering the taxes one has to pay and is lower than the inflation rate. By putting the money in a CD, one will actually loose money. The highest CD rate I can find is 3.54%. Of course the rate may remain the same or go lower/higher depending on the fed funds rate over the long-term.

So a better way to invest this money is to invest in foreign utility stocks that pay nice dividends and have some stable growth in times like now and in bull market periods.

An easy way to invest this $5,000 is to put $1K into 5 different foreign ADRs of 5 different countries as follows. At Friday’s closing price, this tiny portfolio will look like this:

1. Eni Spa – E – Italy
Yield 5.05%
Number of shares = 14.72

2. EON AG – EONGY – Germany
Yield – 2.39%
Number of shares = 15.81

3. Energias De Portfgual SA – EDPFY – Portugal
Yield – 2.49%
Number of shares = 16.64

4. Suez ADS – SZEZY – France
Yield – 2.66%
Number of shares = 16.52

5. Companhia Energetica de Minas Gerais – CIG – Brazil
Yield – 9.80%
Number of shares = 54.00

Note: Brokerage commissions are not included in this calculation

This portfolio will yield a total dividend of $224 per year. That equals to a yield rate of 4.48%.

This 4.48% is higher than the average CD rate for 1 year of 3.09% or 3.54%.

Hypothetical Scenarios:

1.In 5 years, at 4.48% our $5K would have grown to $6,225. This assumes that dividends were not reinvested into additional shares. If that was done, the return would be even higher.

At the CD rate of 3.09%, in 5 years this $5K would have grown to only $5,822. That is $400 less than investing in the above portfolio. Also this difference will be higher since the taxes on qualified dividends is a lot lesser than ordinary income taxes levied on interest earned.

2.Let’s assume that there is a share price appreciation rate of 5% average per year for the portfolio and the dividend rate remains the same. Of course the stock prices can go down as well. But over many years the growth rate will be positive.

Note: Most high quality companies especially utilities and banks increase dividends year over year.

Then the $5,000 will grow at 9.48% (5% capital growth rate + 4.48% dividend rate) per year.

This $5K will be worth as below:

In 1 year = $5,474
In 5 years = $7,864
In 10 years = $12,369
In 20 years = $30,596
In 25 years = $48,122
In 50 years = $463,137

Thus someone who invests their $5K as in the above portfolio and does nothing with it for the 50 years, will easily get nearly half a million $. Since most companies increase dividends and the stock price appreciation rate will be higher then 5% average, this small investment will be a wonderful nest egg during retirement.

Some of the places you can vacation with a fruitful investment such as the above are:

Photo: Seychelles, Indian Ocean

Photo: Mauritius, Indian Ocean