Role of Dividends in Real Equity Returns of Major Global Markets

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Dividends account a significant portion of the total return of stocks especially over long periods. But how much do dividend yields, dividend growth, multiple expansion contribute to total returns? The following chart from SocGen provides the answer:

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Via The Absolute Return Letter, Oct  2012, Absolute Return Partners LLP

The U.S. has the highest annualized total returns at 4.4% among the countries noted.While dividend yields account for about 3% of total returns in the U.S. the dividend yield is much lower in Japan. In both Japan and U.S. multiple expansion plays  a strong role compared to other countries.Australia and the UK have had high dividend yields since 1970.Unlike Japan, the US and UK , dividend growth is high in France, Germany, Australia and Canada.

Ten dividend stocks to consider from the countries listed above (excluding Japan) are listed below:

1.Company: Royal Bank of Canada (RY)
Sector: Banking
Current Dividend Yield: 4.18%
Country: Canada

2.Company:British American Tobacco PLC (BTI)
Sector: Consumer products
Current Dividend Yield: 3.97%
Country: UK

3.Company: Telstra Corp Ltd(TLSYY)
Sector: Telecom
Current Dividend Yield: 7.23%
Country: Australia

4.Company: RWE AG (RWEOY)
Sector: Electric Utilities
Current Dividend Yield: 5.67%
Country: Germany

5.Company: National Grid PLC (NGG)
Sector: Electric Utilities
Current Dividend Yield: 5.53%
Country: UK

6.Company: Exelon Corp (EXC)
Sector: Electric Utilities
Current Dividend Yield: 5.85%
Country: USA

7.Company: National Australia Bank Ltd (NABZY)
Sector: Banking
Current Dividend Yield: 6.77%
Country: Australia

8.Company: Enbridge Inc (ENB)
Sector:Natural Gas Utilities
Current Dividend Yield: 2.77%
Country: Canada

9.Company: Axa SA (AXAHY)
Sector: Life Insurance
Current Dividend Yield: 5.77%
Country: France

10.Company: Cullen/Frost Bankers Inc (CFR)
Sector: Banking
Current Dividend Yield: 3.31%
Country: USA

Note: Dividends noted are as of Oct 5, 2012

Disclosure: Long AXAHY,RY, RWEOY

Australia’s Major Trading Partners in 2012

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In this post lets take a quick look at Australia’s major trading partners this year. The graph below shows Australia’s export regions:

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The majority (71%) of Australia’s exports goes to East Asia with China, Japan and Korea being the major export markets. Australia’s trade with Asian countries is significantly large compared to its trade with Europe and Americas. China is the largest export market for Australia since the Chinese demand for Australia’s natural resources such as coal is high.

The chart below shows Australia’s import sources:

East Asia is the major source of imports for Australia with China and Japan accounting for the majority of imported goods.  The U.S. is the third largest import source for Australia.

Australia’s major trade partners in 2010 are shown in the graphs below.

Australia’s Top 10 Export Markets 2010 ($ billion):

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Australia’s Top 10 Import Markets 2010 ($ billion):

Source: Summary of Australia’s Trade, Department of Foreign Affairs and Trade

Related ETF:

iShares MSCI Australia Index (EWA)

Disclosure: No Positions

A History of Bubbles

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I came across an interesting article by Jonathan Brodie of South Africa-based Allan Gray Proprietary Limited discussing stock market bubbles and how extreme bearish mainstream media cover stories about investing in stocks are contrary indicators. The famous 1979 BusinessWeek cover that pronounced the ‘Death of Equities‘ was a classic example of such contrary indicators.

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Some key takeaways from the article:

  • In the second half of 1980s, the Nikkei 225 nearly quadrupled in value and stood at an all-time high of about 39,000 by the end  of 1989. By then books on Japanese management techniques became the craze of the world and then Nikkei lost half its value by 1992 and  then halved again by 2003.
  • Two decades after the BusinessWeek article, the internet and technology-related stocks propelled Nasdaq to an all-time high only to plunge  70% by 2003 when the dot-com bubble burst. Books such as Dow 36 000 and Jeremy Siegel’s Stocks for the Long Run became the must-reads during the tech mania. The high-tech darling of the time, Cisco Systems (CSCO) became the most valuable company in the world for a brief period. Later the company’s shares collapsed by over 85% when the party ended.
  • The rise and fall of South Africa’s FTSE/JSE All Share Index (ALSI) in the 1960s as shown in the chart above is another example of bubble that inevitably bursts.  By 1969, the index had risen by about 500% in the decade “prompting the Financial Mail to quote a leading broker who declared that ‘the market is now in orbit, and the force of gravity no longer applies.” The market did not stay in the orbit for too long and after two years the index had lost two-thirds of its value.

The chart above also shows the dramatic rise and fall of gold in the 1970s and iron ore in the last decade.

Source: Investing: a history of bubbles, Jonathan Brodie, Allan Gray Proprietary Limited, South Africa

Related ETFs:

SPDR Gold Trust (GLD)
iShares MSCI South Africa Index (EZA)
PowerShares QQQ Trust (QQQQ)
iShares MSCI Japan Index (EWJ)
Market Vectors Steel (SLX)

Disclosure: No Positions

A Comparison of Canadian and U.S. Housing Markets

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Is the Canadian housing market in a bubble or not? Its a question that Canadians and foreign investors in Canada worry about these days. Almost not a week goes by without the media talking about the housing market in Canada. This is because housing prices in Canada continue to remain strong despite weakness in the economy. Rightly so many investors wonder how long the party can last.

Though the Canadian economy is highly dependent on the U.S., the country’s housing market has remained exceptionally strong in the past few years. Instead of trying to predict if the housing market in Canada will crash or not, investors may be better off trying to understand why the market is holding up so well. Though the U.S. and Canada are closely integrated in many ways, the housing markets are vastly different between the countries. In this post, let us take a look at some of the differences between the U.S. and Canadian housing markets.

The chart below shows the growth of house prices in US and Canada since 2000:

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Home prices in Canada have followed an upward trend since 2000. While housing prices fell during the recession starting in September 2008 prices have again recovered strongly to exceed pre-recession levels by about 14.1%. Compared to the Canadian market, the prices in the U.S. have fallen heavily since the recession and only this year has started to moderate or rebound slightly.

Some of the difference between Canadian and U.S. housing markets are listed below:

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Source: Housing Market and Macroprudential Policies: Is Canada a Success Story?, Econote, August 2012, Societe Generale

Australia Vs. Canada: Household Savings Rate and Debt to Disposable Income

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The Canadian household savings rate in 1990 was higher than Australia’s household savings rate. However as a result of the global financial crisis and high interest rates the Australian savings rate jumped from negative 2% to 12% before stabilizing at around 10%. The Canadian savings rate has continued to follow the downward trend since 1990 though it has also stabilized as shown in the graph below:

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The following chart shows the comparison of debt to disposable income between the two countries:

 

Unlike Canada, the Australian debt to disposable income is declining since the financial crisis. Rising wage growth combined with higher savings rate puts Australian households in better shape than Canadian households.

Source: How Safe Are The New Safe Havens, by Nathaniel Hyde, CFA, Global Bond Strategies, Standish Mellon Asset Management Company LLC