Why Search for High-Yielding Dividend Stocks Abroad

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When searching for income stocks foreign markets offer many attractive opportunities. Stocks with dividend yields of 3% or more can be found abroad to the 2% for US stocks as represented by the S&P 500. Though many sectors within the S&P 500 such as telecoms have much higher dividend yields, investors looking to diversify and also earn potentially higher returns can find excellent companies in foreign markets.

The following graph shows the 2016 Dividend Yield Estimates by Region for MSCI Indices:

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MSCI 2016 Dividend Yield by Region Estimates

The table below shows the 2016 Dividend Yield Estimates by Region for MSCI Indices by Sector:

MSCI 2016 Dividend Yield by Sector Estimates

Source: Dividends Rediscovered, Thornburg Investment Management

High income stocks are found in the energy, utility and telecom industries in the U.S. Since the major companies in these sectors tend to be stable and slow growers they are usually the preferred areas of the market for income seeking investors. Within these sectors, Australian firms have higher yields than the US firms.

IT and consumer discretionary sectors are better suited for growth potential than dividends. Hence the dividend yields of this sector is very low in the US.

Other than healthcare, Australian companies have yields ranging from over 3% to 6%. For US investors Australia is a great place to look for dividend stocks.

Investors generally tend to overlook the Nordic region. However Nordic countries offer many pros such as being outside of the Euro zone. For example, in the Nordic telecom industry, Telenor ASA (TELNY) offers a 6% dividend yield.

Financials in other developed have substantially higher yields than in the U.S.

Disclosure: No Positions

Knowledge is Power: Emerging-Market Supercycle, Canadian Banks, Building Blocks of Diversification Edition

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  1. “I got nothing against the press” (Vanguard Blog for Advisors)
  2. Will Rising U.S. Debt Levels Keep the Fed On Hold? (Schwab)
  3. Is South Africa the next Brazil? (Money Observer)
  4. What Will Drive the Next Emerging-Market Supercycle? (AB Blog)
  5. The House View: The Building Blocks of Diversification (Salient)
  6. Natural Capital: What Is the True Cost of Food? (Der Spiegel)
  7. The growth-and-value cycle (Fidelity)
  8. The data that proves just how much active emerging market funds have let long-term investors down (FE Trustnet) and see Do active funds do better in bear markets? Nope (MoneyWeek)
  9. CIBC is no longer the underdog of Canadian banking as performance and dividend beat rivals (Financial Post)

Rockefeller Center-2015

Rockefeller Center, New York

Lafferty: The World’s 15 Highest Rated Banks

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London-based Lafferty Group released a new ranking of global banks based on a variety of factors. This list has many surprises.

Here is a brief description of the methodology used:

Using quantitative and qualitative criteria and looking at areas such as strategy, culture, customer care, brand promise and financial performance, Lafferty Group uses the banks’ annual reports to arrive at a quality rating (from one to five stars) for each of 100 financial institutions in 28 countries.

The 15 financial institutions that received the highest ratings in the world are:

  1. Capitec from South Africa
  2. Barclays Africa from South Africa
  3. HDFC from India
  4. Discover from the US
  5. Public Bank from Malaysia
  6. Hong Leong from Malaysia
  7. OCBC from Singapore
  8. TSB from the UK
  9. Swedbank of Sweden
  10. Handelsbanken from Sweden
  11. National Bank of Kuwait
  12. ADIB from the UAE, and
  13. Sterling Bank from Nigeria
  14. Arab National Bank from Saudi Arabia
  15. BCA from Indonesia

Most of the major developed world banks received only a  3-star or 2-star Lafferty quality ratings. This is indeed interesting since they seem to dominate the world and the media. However this ranking shows that there are banks especially in the emerging markets that are better than their developed world peers based on certain factors.

I wrote an article many years ago about Sweden-based Handelsbanken. It is the world’s best stock in terms of returns even beating Buffet’s Berkshire Hathaway . Other than the two Swedish banks and the one bank from Singapore, rest of the banks in this list are from emerging and frontier markets.

Source: Large universal banks lag behind in new quality ratings, Bobsguide

Disclosure: Long Swedbank (SWDBY)

Also checkout:

The World’s Best Developed Markets Banks 2016 (TFS)

Mexico ETF vs. Brazil ETF

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“So far from God and so close to the US” – former Mexican President Porfírio Díaz

Mexico’s economy is closely tied to the US. So when US economy is in expansion mode Mexican economy grows and vice versa. Due to the close proximity to the US, Mexico is permanently in a better position in terms of trade ties with the US than other Latin American nations including Brazil.

Brazil is commodity-based economy and has been adversely affected by the slump in commodity markets in recent years. While Brazil has declined Mexico has held up well. The divergence in performance is also wide in terms of the equity returns of these two markets. Let’s take a look at the returns of the country ETFs over different periods to demonstrate the theory.

a) Year-to-Date Returns:

The iShares MSCI Brazil Capped (EWZ) is up by about 23% year-to-date. But the iShares MSCI Mexico Capped (EWW) has grown by only about 3.5%. But this tells only part of the story as the two charts in longer periods shows below. Besides Brazilian equities have run up from huge declines last year.Furthermore we still have nine more months to go and a lot can change during that time,

b) 5 -Year Returns:

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EWZ vs EWW 5 Years

In 5 years, Mexico ETF is down by 18% while Brazil ETF lost more than half of its value with a loss of 67%. Though both the countries are emerging countries, Mexico has performed better than Brazil in this period.

b) 10-Year Returns:

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EWZ vs EWW 10 Years

Source: Yahoo Finance

The variance in returns over the 10-year period is even higher. The Mexico ETF rose by over 43% while the Brazil ETF declined by 31%.

So from an investment standpoint, it is wise to have exposure to the Mexican market when considering emerging markets.Low dependency on commodities and good manufacturing base with strong ties to the US market are strong plus points for Mexico.

Disclosure: No Positions

Average Stock Dividend Yields By Country

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Dividend yields are generally higher overseas relative to the U.S. market. In the U.S. investors and management tend to prefer high share prices while in other developed economies investors prefer both moderate price appreciation and high dividend payments.

The following chart shows the Average Stock Dividend Yields in G-20 countries:

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Dividend Yields by Country Jan 2016

Source: The Dividend Signal Uncovering Global Growth Opportunities, Salient Partners

Here a few points to remember when investing in foreign stocks for dividends:

  • Other developed countries such as France, Germany, UK, etc. have higher average dividend yields than the U.S.
  • Even just venturing Canada one can earn more than 3% dividends compared to the average of around 2% to US stocks.
  • South Korea, India and Japan are low dividend countries and hence income investors can avoid dividend stocks in those countries.
  • Investing in foreign stocks for dividend involves dividend withholding taxes.So investors should be mindful of the effects of this tax and try to avoid it if possible.