Knowledge is Power: Brazil Election, Year-End Tax Moves, Yield Scarcity Edition

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Rousseff or Neves? Brazilians Await Bad News Whoever Wins (Bloomberg)

The eurozone’s German problem (CER)

42 stocks that’ll thrive even if the economy gets worse (Financial Post)

Invesco Perpetual’s Mustoe: Why I’m betting big on Europe (FE Trustnet)

12 savvy year-end tax moves (Fidelity)

2020 Vision: Yield Scarcity and the Case for Dividends (Franklin Templeton Investments)

STOCKS FOR THE LONG RUN? (Evanson Asset Management)

4 Mistakes to Avoid in International Investing (Charles Schwab)

Can businessmen make good politicians? (The Hindu BusinessLine)

Why Don’t Germans Invest in Stocks? (Bloomberg BusinessWeek , 2010)

The Biggest Myths in Economics (Pragmatic Capitalism)

The Path to Becoming an Emerging Market (AllianceBernstein Blog)

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Near Central Park -Manhattan New York

Near Central Park, Manhattan, New York City

Comparing the Contribution of Dividends and Share Price Gains to Total Returns Across Regions

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Dividends are an important factor that must be considered when selecting equities. This is because dividends provide a cushion to a well-diversified portfolio during adverse market conditions and also provide an income stream. More importantly they help boost the total returns of an investment especially over the long-term. According to a research study by Allianz Global Investors dividends accounted for 40% of the total return on equity investment in the past 40 years. Many other studies have also shown that dividends form a substantial portion of the total returns.

When evaluating total returns it is wise to review the contribution of dividends and share price gains.The following chart shows the Contribution of Dividends and Share Price Gains to Total Returns from 1970 and 2014(annualized) across select global regions:

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Global Comparison of Divi and Stock Price Returns

 

Source: Dividend strategies in times of financial repression, Allianz Global Investors

Dividends accounted for 42% of the equity returns for the MSCI Europe during the period shown. Although dividend yields were low in absolute terms, they also contributed more one-third of the total performance for other regions as well including North America (MSCI North America) or Pacific (MSCI Pacific).

Related ETFs:

  • iShares Dow Jones Select Dividend ETF (DVY)
  • SPDR S&P Dividend ETF (SDY)
  • Vanguard Dividend Appreciation ETF (VIG)
  • Vanguard High Dividend Yield ETF (VYM)
  • SPDR DJ Euro STOXX 50 ETF (FEZ)
  • iShares Asia/Pacific Dividend ETF (DVYA)

Disclosure: No Positions

On the Performance of Brazilian Utility Stocks

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The Brazil presidential election run-off is on Oct 26th (Sunday).The current President Dilma Rousseff is challenged by Aécio Neves. Investors are eagerly waiting for the outcome of this election as there will be major policy changes that impact the investment climate in the country.They are betting for a Aécio Neves win as Dilma has been a disaster during her tenure from an investors’ point of view. Brazil used to be a hot destination for investors when President Lulu was in office and the equity markets soared.

In the past few years Brazilian stocks in general have been poor performers compared to other emerging markets. Among the Brazilian ADRs trading on the US markets, utilities have not fared well either.

The table below shows the 5-year and year-to-date price return of Brazilian utility stocks trading on the NYSE:

S.No.CompanyTickerStock price as of Oct 22, 2014 CloseYear-to-date change(%) as of Oct 22, 20145-Year Price Return (%)
1Companhia Energetica de Minas Gerais(CEMIG)CIG$6.092.34%-28.42%
2Comp. Paranaense de Energia(COPEL)ELP$13.000.23%-25.17%
3Centrais Eletricas Brasileiras-EletrobrasEBR$2.56-5.02%-82.85%
4CPFL EnergiaCPL$14.79-7.81%-15.30%

Source: BNY Mellon, Yahoo Finance

All four stocks noted above yielded negative returns in the past five years. Eletrobras was the worst performer with an incredible loss of about 83%.

The losses of these utility stocks underscores the risk involved in investing in utilities of emerging markets even for the long-term.

Disclosure: No Positions

Oil Prices Fall, Oil and Gas Equipment & Service Providers Fall Harder

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Oil prices have fallen from over 100$ per barrel to $82.77 (WTI) yesterday. However the stock prices of many of the companies that produce the equipments for the insustry and provide services have fallen much harder.For example, France-based CGG (CGG) is down nearly 58% year-to-date.

The following are five of the foreign Oil and Gas Equipment & Service Providers that trade on the US markets:

1.Company: CGG (CGG)
Current Dividend Yield:  Dividends not paid
Country: France

2.Company: Petroleum Geo Services ASA (PGSVY)
Current Dividend Yield: 6.52%
Country: Norway

3.Company: Technip SA (TKPPY)
Current Dividend Yield: 3.54%
Country: France

4.Company: SeaDrill Limited (SDRL)
Current Dividend Yield: 16.31%
Country: Bermuda

5.Company: Petrofac Limited (POFCY)
Current Dividend Yield: 3.86%
Country: Channel Islands with HQ in London, UK

Just because the stock prices of these companies look cheap they don’t mean they are a great buy at current levels. Dividends can be cut if oil prices fall further and stock prices can get even cheaper.

Note: Dividend yields noted above are as of Oct 21, 2014. Data is known to be accurate from sources used.Please use your own due diligence before making any investment decisions.

Disclosure: Long TKPPY

The Top 10 U.S. Firms with Highest Growth in Annual Dividends per Share in 10 years

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In an article yesterday we looked at the top 10 US companies based on the dividends paid. More important than the dividends paid is the annual dividend growth rate. This rate is especially important over many years due to the effect of compounding in boosting the investment returns assuming an investor reinvests dividends.

The following table shows the top firms with the Highest Growth in Annual Dividends per Share over 10 years according to a research report by FactSet published last month. Companies with a starting or current dividend yield of less than 2% were excluded in this list. The growth rate calculated is that of compound annual growth rates based on annual dividends per share.

S.No.CompanyTickerSector10-Yr Annual DPS Growth10-Yr Annual EPS Growth10-Yr Annualized Return
1Diamond Offshore DrillingDOEnergy23.10%9.30%
2Occidental PetroleumOXYEnergy17.30%13.50%16.30%
3ONEOK, Inc. OKEEnergy15.70%1.70%24.70%
4Wisconsin EnergyWECUtilities13.70%9.30%13.80%
5Mattel, Inc. MATConsumer Discretionary13.70%7.80%10.80%
6ConocoPhillipsCOPEnergy12.70%8.20%13.90%
7Public StoragePSAREITs11.10%14.40%16.10%
8General Mills, Inc. GISConsumer Staples10.90%7.50%11.70%
9PACCAR IncPCARIndustrials10.70%9.50%11.40%
10Raytheon CompanyRTNIndustrials10.60%21.50%13.80%
S&P 500-6.00%6.30%5.30%

Source: Dividend Quarterly, September 15, 2014, FactSet

All the companies noted above have annual dividend per share(DPS) growth rates exceeding that of the S&P 500’s 6.0%. Energy firms dominate the above list and financials did not make the cut since many of them cut or suspended dividends during the global financial crisis. Wisconsin Energy Corporation(WEC) is a multi-utility operating in the electric and natural gas industries. Long-term investors can consider ConocoPhillips, Raytheon Company and General Mills adding to their portfolios and avoid companies such as Mattel in the consumer discretionary sector.

Note: Data is known to be accurate from sources used.Please use your own due diligence before making any investment decisions.

Disclosure: Long GIS