Knowledge is Power: Italy, Canadian Banks, Oil Services Sector Edition

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Storm hits Canadian banks: RBC, BMO, TD downgraded as sector faces worst start in 25 years (Financial Post). Also checkout Canadian Bank Stocks Post Worst Start in 25 Years (Bloomberg)

Hugh Young: we can hardly find any value in India (Citywire, UK)

Guest post: can India repeat China’s ascent? (FT beyondbrics)

Too many choices, high costs and bureaucracy: British expats grade American healthcare system ‘a pain in the arse’ (The Guardian)

Fisher’s financial myth-busters: ensure it’s a bull before diving in (Money Observer). Also see Fisher’s financial myth-busters: one big bear and you’re done (Money Observer)

When to buy the oil services sector (Interactive Investor)

What’s So Cool About ETFs? (Blackrock Blog)

Why Facebook’s math doesn’t add up (MaCleans)

The myth of being average (Vanguard Blog for Advisors). Plus read Shopping for alpha: You get what you don’t pay for (Vanguard)

Connecting to China’s New Equity Plays (Alliance Bernstein Blog)

Against the tide: Italy is a boiling frog (EuroMoney)

Washington War Memorial

 National World War II Memorial, Washington DC

On the Performance of Greek Bank Stocks Year to Date

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The Greek people elected PM Alexis Tsipras of the left-wing SYRIZA party in the recent election. Since his election, he has canceled some of the austerity programs and has reinstated certain laid public workers such as street cleaning ladies.Greece is without a doubt on a collision course with its creditors.According to one report, Greece owes  some €315bn or the equivalent of 175% of its GDP to creditors. From a news article in the BBC today:

German Chancellor Angela Merkel has ruled out cancelling any of Greece’s debt, saying banks and creditors have already made substantial cuts.

But Mrs Merkel told the Die Welt newspaper she still wanted Greece to stay in the eurozone.

Greece’s left-wing Syriza party won last weekend’s election with a pledge to have half the debt written off.

Its finance minister said the “troika” of global institutions overseeing Greek debt was a “rotten committee”.

The troika – the European Commission, European Central Bank and International Monetary Fund – had agreed a €240bn (£179bn; $270bn) bailout with the previous Greek government.

But new Finance Minister Yanis Varoufakis has refused to work with the troika to renegotiate the bailout terms and has already begun to roll back the austerity measures the creditors had demanded of the previous government.

Meanwhile, EU economic and financial affairs commissioner Pierre Moscovici told the BBC’s Hardtalk that Greece had to honour its previous commitments, although he said he wanted Greece to remain in the eurozone.

Source: Greece economy: Merkel rules out more debt relief, Jan 31, 2015, The BBC

Investors in Greek stocks are voting with their foot since the new government took power. The benchmark Athens Stock Exchange General Index is down over 12% year-t0-date. Banks have fallen even more so far this year as they would be the most hurt if negotiations with troika fail, their liquidity dries up, the economic situation gets worse, etc. The FTSE/ATHEX Banks Index is off over 38% this year. Earlier it was off more than 50% as the chart shows below:

Click to enlarge

FTSE-Athex Banks Index

Source: Schwab Market Perspective: Diverging Policies…Converging Economies?, Charles Schwab

In the past five years the index is down by more than 90%.

FTSE and the Athex group have announced to rebase the FTSE/ATHEX Banks Index by multiplying index values by 10 after the close of business on February 3, 2015 to improve efficiency and seamless operation.

The year-to-date returns of three Greek banks trading as ADRs on the US markets are listed below:

1.Company: Alpha Bank (ALBKY)
Year-to-date return: -28.57%

2.Company: EFG Eurobank Ergasias S.A.(EGFEY)
Year-to-date return: -50.00%

3.Company: National Bank of Greece
Year-to-date return: -38.55%

Disclosure: No Positions

For the complete list of Greek ADRs go here.

European Bank Stocks: Five to Consider and Five to Avoid

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The European banking sector offers many attractive opportunities now as the economic recovery gains momentum. Investors looking to buy and hold these stocks for a minimum of three to five years may be able to reap solid returns. Unlike in the past,  it is highly unlikely that another European sovereign debt or other type of crisis will occur due to the change of government in Greece.

After years of dithering some banks in Europe have raised capital and are now in a better position than before. They have also written off most of their bad debts and are now focused on growing profitably again.In addition, the financial sector is the pillar of any economy and hence banks are bound to benefit from increased economic activity in Europe. European bank stocks also lagged their American peers last year and offer value at current levels.

The Euro STOXX Banks Index which contains 32 banks from the Eurozone is down 2.55% year-to-date in Euro price terms. In the past five years the index is down about 35%.

The following are five European bank stocks that investors must avoid:

1.Company: Royal Bank of Scotland Group PLC (RBS)
Current Dividend Yield: No dividends paid
Country: UK

The British government owns 63% of ordinary shares and RBS is still suffering from losses sustained during the global financial crisis.

2.Company: Lloyds Banking Group PLC (LYG)
Current Dividend Yield:  No dividends paid
Country: UK

Similar to RBS, the state is a major owner of Lloyds and the bank last paid a dividend in 2009.

3.Company: National Bank of Greece (NBG)
Current Dividend Yield:  No dividends paid
Country:Greece

Despite two reverse stock splits in a short period of time, National Bank of Greece is not worth investing now.

4.Company: Danske Bank (DNSKY)
Current Dividend Yield:  No dividends paid
Country: Denmark

Though Danske restarted dividend payments last year, it still has a long way to go before becoming “normal” bank.

5. Company:Societe Generale (SCGLY)
Current Dividend Yield:
Country: France

Socgen raised its dividend last year but the stock is still ignored by big investors. The stock price struggles to move past the $10 range. BNP Paribas may be a better alternative among French banks.

Five European bank stocks to consider:

1.Company: ING Groep NV (ING)
Current Dividend Yield:  No dividends paid
Country: The Netherlands

ING paid off its final EUR 1.025 billion loan to the Dutch government in November, 2014 and is on track to restart its dividend payments this year. The bank hasn’t paid a dividend since the global financial crisis. ING sold off many of its units worldwide in recent years including the ING Direct units in Canada and U.S. to raise cash. At $12.72 a share one cannot go wrong to buy it for the long haul.

2.Company: Nordea Bank AB (NRBAY)
Current Dividend Yield: 4.75%
Country: Sweden

On Jan 28th, Nordea raised dividends by 44% and will now 0.62 euro per share from 0.43 euro earlier. The ADR swiftly rose in two days from $11.83 to close at $12.96 today.

3.Company:Svenska Handelsbanken AB (SVNLY)
Current Dividend Yield: 5.41%
Country: Sweden

One of the strongest and most conservative banks in the world. The bank has good growth prospects according to this article.

4.Company: UBS AG (UBS)
Current Dividend Yield: 1.70%
Country: Switzerland

5.Company: HSBC Holdings PLC  (HSBC)
Current Dividend Yield: 5.27%
Country: UK

Of all the major British banks, “The World’s Local Bank” looks attractive at current levels with an excellent dividend yield.

Note: Dividend yields noted above are as of Jan 29, 2015. Data is known to be accurate from sources used.Please use your own due diligence before making any investment decisions.

Disclosure: Long ING, DNSKY, LYG

Why Invest in European Aerospace & Defense Stocks

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The Aerospace & Defense industry is one of the important and growing industries in both the U.S. and European. Despite budget cutbacks in the U.S. stocks in the industry have done extremely well in the past few years.Similarly European defense companies have also performed well in recent years. Though countries in Europe spend far less than the U.S. on defense, the industry gets top priority when it comes to budget allocations for obvious reasons. In addition, the recent terrorist attack in France are sure to lead governments to spend more funds on military and surveillance operations.This will benefit the companies operating in the industry.

Europe-based defense firms are also big players in the U.S. market.For example, UK’s BAE Systems(BAESY) competes with Boeing, Lockheed Martin and others for Pentagon contracts.

The STOXX® Europe TMI Aerospace & Defense Index is composed of the major 15 firms in the industry. The index is has more than doubled in the past five years in Euro price terms as the chart shows below.So far this year the index is up by nearly 12%.

Click to enlarge

European Aerospace and Defense Index

Source: STOXX

Of the 15 components in the index, 13 trade on the US OTC markets. They are listed below with their current dividend yields:

1.Company: Airbus (EADSY)
Current Dividend Yield: 1.82%
Country: The Netherlands

2.Company: BAE Systems (BAESY)
Current Dividend Yield: 4.30%
Country:UK

3.Company: Chemring Group (CMGMY)
Current Dividend Yield: 2.90%
Country: UK

4.Company: Cobham (CBHMY)
Current Dividend Yield: 4.03%
Country: UK

5.Company: Finmeccanica (FINMY)
Current Dividend Yield: Dividends not paid
Country:Italy

6.Company: Meggitt (MEGGY)
Current Dividend Yield: 2.62%
Country: UK

7.Company: MTU Aero Engines (MTUAY)
Current Dividend Yield: 1.99%
Country: Germany

8.Company: Qinetiq Group (QNTQY)
Current Dividend Yield: 2.63%
Country: UK

9.Company: Rolls-Royce (RYCEY)
Current Dividend Yield: 2.71%
Country: UK

10.Company: Safran (SAFRY)
Current Dividend Yield: 2.32%
Country: France

11.Company: Thales (THLEY)
Current Dividend Yield: 2.90%
Country: France

12.Company: Ultra Electronics (UEHPY)
Current Dividend Yield: 2.60%
Country: UK

13.Company: Zodiac Aerospace (ZODFY)
Current Dividend Yield: 1.07%
Country:France

SAAB and Senior do not trade on the US markets.

Note: Dividend yields noted above are as of Jan 28, 2015. Data is known to be accurate from sources used.Please use your own due diligence before making any investment decisions.

Disclosure: Long SAFRY

The Dividend Payout Ratio of British Stocks Continues To Rise

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Capita Asset Services of UK published their latest edition of Dividend Monitor report yesterday. They forecast the headline dividend payouts of up to £86.1bn this year. In 2014, UK companies paid out £97.4bn in dividends up 21.0% from the previous year. Some of the key points from the report include:

  • “Special dividends distort true picture as underlying dividends rise just 1.4%, weakest growth since 2010
  • Sterling’s early 2014 strength knocked £3.5bn off full year total
  • Q4 shows improvement, with 4.0% underlying growth fastest since Q3 2013 as currency effects start to reverse on strengthening US dollar
  • Tesco cancellation of dividend to cost investors £900m, but 2015 outlook is brighter
  • Capita revises forecasts headline payouts up to £86.1bn in 2015
  • Underlying total to climb by 5.7% to £83.6bn”

Source: 2014 Dividends Weaker Than Feared But UK Investors Feel Benefit Of Stronger, Jan 26, 2015, Mondovisione

The chart below shows the yearly growth of dividends since 2007:

Click to enlarge

Uk Dividends by Year

Source: Capita Asset Services

According to a note by Citi, UK firms have paid out higher dividends since the financial crisis and they predict  the trend will continue. The chart below shows the UK dividend payout ratio since 1965:

Click to enlarge

UK Dividend Payout Ratio

Source: Why equities are at their cheapest in 100 years, Interactive Investor

Currently British firms have a dividend yield of about 3.5% compared to just around 2% for the S&P 500. The FTSE 100 is up 4.4% year-to-date as of Jan 26 relative to the S&P 500 which is basically flat so far this year.

British stocks also offer an added advantage for US investors as there there is no dividend withholding tax except for REITs.

Investors looking to gain exposure to British stocks can consider the following ten companies:

1.Company: Unilever PLC (UL)
Current Dividend Yield: 3.46%
Sector: Food Products

2.Company: HSBC Holdings PLC (HSBC)
Current Dividend Yield: 5.18%
Sector: Banking

3.Company: British American Tobacco PLC (BTI)
Current Dividend Yield:  4.25%
Sector:Tobacco

4.Company: Royal Dutch Shell PLC (RDS.A)
Current Dividend Yield: 5.66%
Sector: Oil, Gas & Consumable Fuels

5.Company: Vodafone Group PLC (VOD)
Current Dividend Yield: 5.05%
Sector: Wireless Telecom

6.Company: AstraZeneca PLC (AZN)
Current Dividend Yield: 3.97%
Sector: Pharmaceuticals

7.Company: BP PLC (BP)
Current Dividend Yield: 6.17%
Sector: Oil, Gas & Consumable Fuels

8.Company:SSE PLC (SSEZY)
Current Dividend Yield: 6.25%
Sector:Multi-Utilities

9.Company: National Grid PLC (NGG)
Current Dividend Yield: 4.92%
Sector:Multi-Utilities

10.Company: Rolls-Royce PLC(RYCEY)
Current Dividend Yield: 2.67%
Sector: Aerospace & Defense

Note: Dividend yields noted above are as of Jan 27, 2015. Data is known to be accurate from sources used.Please use your own due diligence before making any investment decisions.

Disclosure: No Positions