Knowledge is Power: Greece, Flying, Emigration Edition

EM sell-off may have further to run (beyondbrics)

World’s Largest Oil and Gas Companies (Petro Strategies)

Europeans emigrating in droves (MarketWatch)

Which of the emerging economies is afraid of higher interest rates? (Deutsche Bank Research)

Greece first developed market cut to ‘emerging’ status after 83% stock plunge (Financial Post)

Global Report: The uncomfortable truth about Bangladesh (Canadian Business)

Carmignac Gestion piles in to frontier markets (Trustnet)

Cyclical Stocks Appeal After Defensive-Led Rally (AllianceBernstein blog)

Why is flying so awful? (McClean’s)

Click to enlarge

 US-Tire-Mkt

 

 

Source: Continental Sells to Tire Salesmen in the U.S., Bloomberg BusinessWeek

Why Income Investors Should Consider Foreign Dividend Stocks

Many developed equities generally have higher dividend yields than U.S. stocks. For example, the dividend yield on the S&P 500 has remained around a low 2.0% for many years now. However it is possible to earn much higher yields by investing in companies in other developed markets such as Germany, Australia, Singapore, etc.

In countries such as Singapore or Australia, the dividend culture is deeply-rooted. Companies there return a good chunk of their profits as dividends to shareholders. This is vastly different from the U.S. where most companies retain a major portion of their profits for expanding operations, increasing R&D expenditures, share buybacks, acquisitions, etc. Many decades ago U.S. investors bought stocks in order to earn a steady income in the firm of dividends. However that expectation changed in the past few decades when  investors focused more on capital appreciation than income. As a result, companies are more than happy to hold on to earnings and spend them as they wish. Though corporate profits has soared in the years since the financial crisis and only limited growth opportunities exist, most firms continue to have low payout ratios.  Some firms have artificially boosted their earnings and stock prices by implementing share buyback programs. Since short-term mentality drives how U.S. public companies operate on a daily basis and management’s compensation is mostly tied to rising stock prices, accounting gimmicks such as share buybacks are unlikely to go away anytime soon.

From an article on global dividend stocks in Financial Advisor magazine:

When advisors and investors seek dividend yields, many think U.S. only. U.S. companies are expected to pay $300 billion in dividends in 2013, according to S&P Dow Jones Indices.  But foreign companies yield more, on average, and overseas dividend growth is expected again for this year. Dividend yields received from U.S. companies currently average only 2.1 percent, compared to nearly double that — 4 percent to 4.5 percent — from foreign companies, according to Thomson Reuters MSCI.

About 66 percent of the world’s dividends come from outside the U.S., according to Thomson Reuters MSCI, and advisors can easily diversify client portfolios with a dollop of foreign dividend-paying stocks.

Within the global market for dividends, the practices and policies surrounding dividend payments varies. The UK, Europe and Asia-Pacific maintain strong dividend cultures and companies tend to distribute high percentages of earnings in the form of cash dividends. Meanwhile, the U.S. and Japan have less emphasis on returning profits to shareholders via dividend payments.

Source: Going Global For Dividends, Bruce W.Fraser, Financial Advisor

The following two charts show how foreign companies pay higher dividends and have more total return opportunities :

Click to enlarge

Percentage of MSCI ACWI stocks with dividend yield of 4% or more and market capitalization of $1.5 billion or more

Foreign-US-Dividend-Stocks

Data Source: MSCI All Country World Index. Data as of 03/31/13

International Markets Offer More Total Return Opportunities

Number of stocks by sector with dividend yield of 4% or more and market capitalization of $1.5 billion or more.

Foreign-Total-Returns-Opportunities

Source:  Market View: Attractive Dividends? Earnings Growth? A Way to Get Both,  Lord Abbett

It should be noted that though factors such as withholding taxes, currency exchange rates, etc. can affect overall returns from investments in foreign stocks, one can still come out ahead since the base dividend yield rates are higher.

Investors looking to add international dividend stocks can consider some of the options listed below:

1.Company:Singapore Telecommunications Ltd (SGAPY)
Current Dividend Yield: 4.35%
Sector: Telecom
Country: Singapore

2.Company: Eni SpA (E)
Current Dividend Yield: 4.91%
Sector:Oil, Gas & Consumable Fuels
Country: Italy

3.Company: Telstra Corp Ltd (TLSYY)
Current Dividend Yield: 6.43%
Sector:Telecom
Country:  Australia

4.Company: Edp Energias De Portugal SA (EDPFY)
Current Dividend Yield: 4.68%
Sector:Electric Utilities
Country: Portugal

5.Company:Reed Elsevier NV (ENL)
Current Dividend Yield: 3.03%
Sector: Media
Country:  The Netherlands

6.Company:Syngenta AG (SYT)
Current Dividend Yield: 2.13%
Sector: Chemicals
Country: Switzerland

7.Company:Diageo PLC (DEO)
Current Dividend Yield: 2.32%
Sector: Beverages
Country: UK

8.Company: Total SA (TOT)
Current Dividend Yield: 5.16%
Sector:Oil, Gas & Consumable Fuels
Country: France

9.Company: Swedbank AB (SWDBY)
Current Dividend Yield: 6.50%
Sector: Banking
Country: Sweden

10.Company: National Grid PLC (NGG)
Current Dividend Yield: 5.39%
Sector: Multi-Utilities
Country: UK

Note: Dividend yields noted are as of June 11, 2013. Data is known to be accurate from sources used.Please use your own due diligence before making any investment decisions.

Disclosure:  Long SWDBY

Download: Credit Suisse Global Investment Returns Yearbook 2013

Every year Credit Suisse publishes their famous Global Investment Returns Yearbook. This year’s version was released in February. As usual this year’s report include a ton of fascinating charts and data. Here is one chart:

Click to enlarge

Likely-Returns-Stocks-and-Bonds

Figure 11 highlights the contrast with the past. The two sets of bars on the left are taken from Figure 1 and represent historical annualized real returns since 1950 and 1980 – the high-returns world. The bars on the right represent our estimates of the expected real returns on equities and bonds over the next generation. The bond returns are based on current yields, while the equity returns are based on expected cash returns plus an annualized equity premium that averages 3½%,but which varies with the systematic risk of each country/region.

Download the full report in pdf click on the image below:

CS-Yearbook-2013-Cover

 

Past Versions:

Credit Suisse Global Investment Returns Yearbook 2012

Credit Suisse Global Investment Returns Yearbook 2011

Why Holding Bonds is Important in a Well-Diversified Portfolio

The yield on the 10-year Treasury note rose about 0.08% to close at 2.16% on Friday.The 30-year U.S. Treasury bond rose 0.07% and closed at 3.32%. The yield on the 10-year Treasury bond rose dramatically by 27% in last month alone. Bond yields and prices are inversely related to each other. Hence as yields rise bond prices fall.

Currently investors expect the Federal Reserve to wind down its bond-buying program later this year and interest rates to rise. A rise in interest rates would lead to a fall in bond prices. So investors may be tempted to dump bonds now and hold only other assets such as stocks, cash, gold, etc.According to a research report published by The Schwab Center for Financial Research (SCFR), bonds still play a role in an overall portfolio for the following reasons: Diversification and reduced volatility, Income, Time, Capital Preservation and A Stable Foundation.

To support the argument for holding bonds in a portfolio, the authors of the report Kathy A. Jones, Rob Williams and Collin Martin included in the following neat chart comparing the performance of stocks and bonds when stocks declined 14% or more since the 1970s:

Click to enlarge

Bond-vs-Stock-Returns

 

Source:  Schwab Bond Insights: Timing the Taper, Charles Schwab

The above chart shows that when stocks declined heavily bonds yielded a small positive or even a substantially higher return. Hence holding bonds can provide a cushion effect to a portfolio of stocks. In addition, bonds tend to reduce a portfolio’s volatility as equities are generally more volatile.

During the recent global financial crisis (from November 2007 thru February 2009), when stocks plunged by over 50% as measured by the S&P 500, bonds yielded a decent return of 6.57%. When the dot com bubble popped in early 2000, stocks fell by about 45% but bonds had an excellent return of about 23.0%.The positive impact of holding bonds during such periods cannot be understated.

It is a wise idea to hold bonds as of part of a well-diversified portfolio.  However the question of how much fixed income securities should one hold depends on many factors including age, tax bracket, goal, investment horizon, etc. of an investor.

Five bond ETFs with their current yields are listed below for consideration:

1. iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD)
Distribution Yield = 3.61%

2. iShares TIPS Bond ETF (TIP)
Distribution Yield = 2.97%

3. Vanguard Total Bond Market ETF (BND)
SEC Yield = 1.65%

4. iShares Core Total U.S. Bond Market ETF (HYG)
Distribution Yield = 2.11%

5. SPDR® Barclays High Yield Bond ETF (JNK)
30-Day SEC Yield = 4.97%

Disclosure: No Positions

Knowledge is Power: Tennis, Robber Barons, Emerging Markets Edition

Time for a change of approach in Europe?,  Invesco Perptual

The problem with tennis in America, DNA

American decline has been exaggerated: Olive, The Star

Cable companies as robber barons (The Guardian)

Why you should ignore the “slowdown” in emerging markets (Trustnet)

What Silicon Valley can teach Canadian businesses about ‘lean innovation’ (Financial Post)

Singapore-Downtown

Singa lion, Singapore