Some European Stocks with Attractive and Sustainable Dividends

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Earlier in the year Morgan Stanley published a list of dividend stocks from Europe. From a news report quoting the research report:

Morgan Stanley screened for: a high dividend yield showing dividend per share (DPS) growth in 2012 and 2013; where the payout ratio is not too onerous (less than 75%); with strong balance sheets with an average debt to market cap ratio of less than 30% over 2012 and 2013, and overall market cap above £3 billion; and free cash flow (FCF) yield greater than 5%.

Some European Stocks with Attractive and Sustainable Dividends are shown in the table below:

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Source:  Chart of the Day: Europe’s top dividend yielding stocks, CityWire UK

Performance Review: AT&T vs. Telenor

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In this post let us take a look at how returns vary when an investor invests in a domestic telecom provider relative to investing in a foreign company.

The Dow Jones Industrial Average component AT&T (T) is one of the large telecommunication companies. Currently the company has a market capitalization of about $205.5 B and the dividend yield is 4.94%. Last year it has total revenues of about $127 billion. AT&T is one of the widely held companies by individuals and institutions.

Norway-based mobile telecom giant Telenor ASA (TELNY) operates 11 markets in the Nordic countries, Central and Eastern Europe and Asia. Telenor has also a major stake in  VimpelCom Ltd (VIP) of The Netherlands which has operations in 19 markets. The largest shareholder of the company at the end of last year was the Norwegian Ministry of Trade and Industry with a stake of about 54%. Currently Telenor trades on the OTC market under the ticker TELNY and has a market capitalization of about $20.0 B. The current dividend yield is 4.28%.

Due to the home country bias and other factors many investors wanting to investing in an utility with high dividend yields and stable growth simply invest in companies such as AT&T. If such investors expanded their horizon and looked abroad they can find better telecom companies that yield much higher returns.

5-year share price return of AT&T and Telenor:

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10-year share price return of AT&T and Telenor:

 

Source: Google Finance

In five years both the stocks were down and the difference in share price returns were not high. However Telenor’s 10-year return is an excellent 538% while AT&T returned just 58%. The above charts show only share price returns and not total returns which include dividends. If total returns are considered the difference in returns will be even higher. A 10,000 Norwegian Krone investment in Telenor’s domestic stock traded on the Norway market 10 years ago would have grown to NOK 56 596.39 with dividends reinvested.That amounts to a total return of 467.14% and an annualized total return of 18.93%. (Source: Telenor Investor Relations). The return shown in the 10-year chart above is different since the charts correspond to the ADR price trading on the US markets.

Norway has a 25% withholding tax rate on dividends earned by US residents.But if Telenor is held outside of a non-taxable account such as a Traditional or Roth IRA, investors can recover the taxes paid in the form a foreign tax credit and the total returns would not be impacted.

Note: Dividends noted are as of Oct 12, 2012

Disclosure: No Positions

Beaten Down Brazilian Electric Utilities Offer Attractive Investment Options

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The Brazilian economy is in the midst of a slowdown. After years of having strong economic growth the emerging market had a moderate growth of 2.7% in 2011 compared to 7.5% in 2010. This year the economy is projected to expand by just 1.5%. However the GDP is estimated to grow by 4.0%.

In order to stimulate economic growth, the government of Dilma Rousseff has announced plans to reduce taxes on electricity which will benefit consumers and business with lower electricity bills. This is a bold and brilliant move by Brazil and is bound to succeed. Policies such as this are unlikely to be even considered by politicians in the developed world. For example, high energy prices in the form of soaring gasoline costs, heating and electricity prices are strangling the already suffering middle-class in the US while the Feds are trying to stimulate growth by printing more money and lending them at dead-cheap rates to institutions.

From a Reuters article last month:

Brazil announced a major cut in electricity taxes on Tuesday that will lower high energy costs for industries and residential consumers, the latest attempt by President Dilma Rousseff to re-energize her country’s once-booming emerging economy.

Energy Minister Edison Lobão said the tax cuts for electricity producers and distributors — first reported by Reuters in May — will “drastically” lower production costs and reduce power rates by up to 28 percent for industries and 16 percent for households.

“This is the biggest reduction in electricity rates that the country has ever seen,” Rousseff said after signing the measures before an audience of business leaders.

“Reduced energy costs … will improve Brazil’s international standing, slow inflation and encourage investment,” said Rousseff, a former energy minister. “It will benefit both the businessman and the consumer.”

Consumers will begin to see lower-cost electricity a s of February 5, an Energy Ministry spokesman said.

After the above announcement investors dumped electric utility stocks since their profit margins will be hurt. As the new regulations do not impact water utilities investors have bid up the share price of the water utility Sabesp. Accordingly Sabesp is the best performing Brazilian ADR year-to-date with a gain of about 55.0%.

The majority of electricity produced in Brazil come from hydropower. In fact, the country generates so much electricity cheaply that it exports the excess power to neighboring countries. Since hydropower generation has high initial fixed costs and lower operational costs compared to producing power from other sources, the adverse impact of lower prices on Brazilian electric utilities should decline as consumption increases. Hence these stocks offer an attractive entry point now with their high dividend yields and cheap share prices. While it is certainly possible that some firms may decrease or even suspend dividend payments in the short-term, investors holding shares for a few years should be rewarded with strong returns.

Brazilian electric utilities trading on the US exchanges are listed below with their current dividend yields and year-to-date (YTD) price changes:

1.Company: Companhia Energetica de Minas Gerais-CEMIG (CIG)
Current Dividend Yield: 14.04%
YTD Change: -14.05%

2.Company: CPFL Energia (CPL )
Current Dividend Yield: 6.58%
YTD Change: -20.24%

3.Company: Comp. Paranaense de Energia-COPEL (ELP)
Current Dividend Yield: 5.24%
YTD Change: -25.79%

4.Company: Centrais Eletricas Brasileiras-Eletrobras (EBR)
Current Dividend Yield: 10.17%
YTD Change: -40.78%

Brazilian utility utilities trading on the OTC markets are listed below with their current yields and year-to-date (YTD) price changes:

1.Company: AES Tiete (AESYY)
Current Dividend Yield: 14.61%
YTD Change: -30.43%

2.Company: Centrais Elet. de Santa Catarina-Celesc (CEDWY)
Current Dividend Yield: 0.99%
YTD Change: -9.82%

3.Company: Comp. de Transmissao-Paulista (CTPZY)
Current Dividend Yield: 22.29%
YTD Change: -48.32%

4.Company: Comp. Energetica de Sao Paulo-CESP (CESDY)
Current Dividend Yield: N/A
YTD Change: -29.65%

5.Company: Comp. Paranaense de Energia-COPEL (ELPVY)
Current Dividend Yield: N/A
YTD Change: -17.92%

6.Company:Light SA (LGSXY)
Current Dividend Yield: 12.02%
YTD Change: -26.36%

7.Company: MPX Energia (MPXEY)
Current Dividend Yield: N/A
YTD Change: -38.03%

8.Company: Tractebel (TBLEY)
Current Dividend Yield: 4.52%
YTD Change: -1.56%

Note: Dividend yields noted are as of Oct 12, 2012

Disclosure: No Positions

Update:

Chart comparing of Brazilian electricity prices against select countries

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Brazil-Power-Rate-vs-Other-Countries

Source:  Brazil’s Cheaper Electricity Comes at a Cost (Bloomber BusinessWeek, Feb 7, 2013)

Ten U.S. Large-Cap Consistent Dividend Payers and Raisers

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Dividends account for a significant portion of total returns of equity investments. This is especially true when total returns are considered over the long-term. Dividend-paying companies generally have strong cash-flows and unlike other numbers reported in earnings statements dividends are paid out of profits. Hence when evaluating stocks it is important to select companies that not only pay at least some dividends but also to look for consistent dividend increases over many years.

The following chart shows the composition of the S&P 500’s total return by decades:

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Source: Pensions & Investments

Dividend returns were higher than capital appreciation in some decades. In the bull market of the 80s and 90s dividends formed a smaller part of the total returns but in the 2000s when equity prices yielded negative 2.7% dividends paid a decent 1.8%.

The top ten holdings in the Mergent’s US Broad Dividend Achievers Index are listed below with their current dividend yields.The US Broad Dividend Achievers Index is:

comprised of companies incorporated in the United States or its territories, trade on the NYSE, NASDAQ or AMEX, and have increased its annual regular dividend payments for the last ten or more consecutive years. In addition, Mergent requires that a stock’s average daily cash volume exceed $500,000 per day in the November and December prior to the annual reconstitution date on the last trading date in January.

1.Company: Chevron Corp (CVX)
Current Dividend Yield: 3.21%
Sector: Oil & Gas – Integrated

2.Company: AT&T Inc (T)
Current Dividend Yield: 4.94%
Sector: Telecom

3.Company: Exxon Mobil Corp (XOM)
Current Dividend Yield: 2.50%
Sector: Oil & Gas – Integrated

4.Company: International Business Machines Corp (IBM)
Current Dividend Yield: 1.64%
Sector: Computer Services

5.Company: Walmart Stores Inc (WMT)
Current Dividend Yield: 2.10%
Sector: Retail (Department & Discount)

6.Company: Johnson & Johnson (JNJ)
Current Dividend Yield: 3.59%
Sector: Biotechnology & Drugs

7.Company: Procter & Gamble Co (PG)
Current Dividend Yield: 3.31%
Sector: Personal & Household Products

8.Company: The Coca-Cola Co (KO)
Current Dividend Yield: 2.67%
Sector: Beverages (Nonalcoholic)

9.Company: PepsiCo Inc (PEP)
Current Dividend Yield: 3.07%
Sector: Beverages (Nonalcoholic)

10.Company: Abbott Laboratories (ABT)
Current Dividend Yield: 2.94%
Sector: Biotechnology & Drugs

Note: Dividend yields noted are as of Oct 12, 2012

Disclosure: No Positions

The World’s Best Banks 2012 by Country

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The latest edition of Global Finance magazine has published The World’s Best Banks for 2012.From the cover story:

Some of the most successful global banks have cut back in Europe to focus on faster-growing emerging markets. Global Finance has identified the best banks in 136 countries and eight regions, as well as the best banks globally in 12 key banking categories. In selecting this year’s winners, Global Finance’s editorial team considered factors that range from the objective to the informed subjective. The objective criteria included growth in assets, profitability, geographic reach, strategic relationships, new business development and product innovation. Subjective criteria included the opinions of equity and credit-rating analysts, banking consultants and others in the industry, as well as corporate and financial executives.

The winners are not always the biggest banks, but rather the best banks—those with qualities that corporations should look for when choosing a bank. These are banks with the most-effective risk-management systems and excellent service.

The best banks by country as listed below:

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Source:World’s Best Banks 2012: Country Winners , Global Finance