Comparison of Dividend Yields between U.S. and Foreign Stocks

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Foreign stocks have traditionally had higher dividend yields than U.S. stocks due to a variety of reasons. While U.S. firms prefer to retain excess earnings for future growth companies in other countries tend to payout a higher portion of earnings to investors in the form of dividends. In some countries such as Australia favorable tax treatment of dividends also encourages firm to payout more.

The current yield on the S&P 500 is 2.06%. For many years the dividend yield on the S&P 500 has stayed around 2%. Compared to this rate many foreign countries have much higher dividend yields.

The following chart shows the dividend yield by country as of the end of July and comparison of yields between U.S. and foreign stocks over a 10-year period:

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Source: International Dividend Sustainability Portfolio 2012-13, Invesco

Over a 10-year period ending July 2012, foreign stocks based on the MSCI EAFE index yielded on an average about 1% more in dividends than U.S. stocks as represented by the S&P 500 index.

Ten foreign dividend stocks having more than 3% dividend yields are listed below for further research:

1.Company: CorpBanca (BCA)
Current Dividend Yield:
Sector: Banking
Country: Chile

2.Company: Telefonica SA (TEF)
Current Dividend Yield: 8.92%
Sector: Telecom
Country: Spain

3.Company: DBS Group Holdings Ltd (DBSDY)
Current Dividend Yield: 5.42%
Sector: Banking
Country: Singapore

4.Company: Companhia Energetica de Minas Gerais Cemig (CIG)
Current Dividend Yield: 13.00%
Sector: Electric Utilities
Country: Brazil

5.Company: Administradora de Fondos de Pensiones Provida SA (PVD)
Current Dividend Yield: 7.42%
Sector: Investment Services
Country:Chile

6.Company: Philippine Long Distance Telephone Co (PHI)
Current Dividend Yield: 4.22%
Sector: Telecom
Country:Philippines

7.Company: Fortum Oyj (FOJCY)
Current Dividend Yield: 6.42%
Sector: Utility
Country: Finland

8.Company:Enersis SA (ENI)
Current Dividend Yield: 3.46%
Sector: Electric Utilities
Country: Chile

9.Company: Enel Spa(ENLAY)
Current Dividend Yield: 8.55%
Sector: Utility
Country: Italy

10.Company:Telenor ASA (TELNY)
Current Dividend Yield: 4.24%
Sector: Telecom
Country: Norway

Note: Dividend yields noted are as of September 14, 2012

Disclosure: Long ENI, BCA

Interdependence between Advanced and Developing Economies

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The decoupling theory implies that the economic growth of emerging countries do not depend on developed countries.This theory failed miserably during the global financial crisis when markets around the world declined simultaneously. In fact emerging markets fell much more than markets in the developed world. In today’s globalized economy, emerging and developed countries are highly dependent on each other. Hence economic growth in the emerging countries is dependent on advanced economies and vice versa.

The following chart shows the strong cyclical interdepence of emeriging and developed economies:

Source: Convergence, Interdependence, and Divergence by Kemal Dervis, Finance and Development, September 2012, IMF

The IMF article notes that since the Asian crisis of 1997-98 interdependence between the two groups of countries has actually become stronger. In addition, linkages among developing countries has also become stronger. For example, trade between Brazil and China is growing at a much faster rate than trade between Brazil and U.S. Hence a reduction in China’s raw material consumption adversely affects the Brazilian economy as commodities form the largest component of Brazil’s exports to China.

Comparing the Unemployment Rate in Brazil and USA

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As an emerging market economy Brazil has a lower unemployment rate than the U.S. In May, the unemployment rate in Brazil stood at a seasonally adjusted rate of 5.4%. Unemployment has been trending  downwards since the peak of over 13% in 2002 as shown in the chart below:

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Source:  Brazil’s Economic Chart Pack, August 2012, Banco Central Do Brasil

Compared to the Brazilian unemployment rate of 5.4%, the U.S. unemployment rate was 8.2% in May this year. Unemployment peaked during the recession and is slowly declining in the U.S.

Source:  Bureau of Labor Statistics, U.S. Department of Labor