Comparison of Dividend Yields Across Major Markets

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The chart below shows the current dividend yields in some of the major equity markets:

Click to Enlarge

Current-Dividend-Yields-by-Country

Source: FT Market Data

Among the developed markets, except Japan the  U.S. has the lowest yield at 2.5% for the S&P 500. Spain is one of the worst performing markets in the first five months of this year. Due to this fall and other factors, the yield on the IBEX 35 at 6.2% is the highest among developed countries. New Zealand equities have traditionally paid high dividends. Hence the New Zealand has the second best yield at 5.1%. Compared to Brazil, Russia and China, India has the lowest yield.

Which is More Important: Job Security or Dividends?

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When the property market crashed in the U.S., many experts argued that prices were 25% above trend. By mid-2008, property prices were down about 30% based on the Case-Shiller index. This meant that price correction was complete and the U.S. economy would go back to normal like it did eventually in Japan. However this did not happen.

One of the reasons for this dichotomy is that Japan has a very different kind of economy in terms of corporate governance. Japanese firms are much more stake-holder oriented whereas U.S. firms are shareholder oriented. This implies that Japanese companies care about their workers, suppliers and other stakeholders than just their shareholders. Hence Japanese firms have traditionally reacted very differently to shocks and crises than U.S. firms.

The evidence of this phenomenon is provided by the answer to the following survey question:

“What’s the prevalent view in your country? If times get bad, should firms maintain dividends and lay off workers or should firms cut dividends and keep stable employment?”

The chart below shows the answer to the above question.

Jobs-or-Dividends

The difference in answers between Japan, Germany, France,the U.S. and UK is very interesting. Japanese firms want to cut dividends and maintain employment. However it is the exact opposite in the U.S. and U.K. In these two countries shareholders of a firm take higher priority above everyone including workers. In Germany and France, firms prefer to maintain employment than pay dividends when faced with tough economic conditions.

Source: The Global Financial Crisis by Franklin Allen and Elena Carletti, Banco Central de Chile

The current unemployment rates in the five countries mentioned are:

Japan = 5.10% in April
Germany = 8.10% in April
France = 10.10% in March
USA = 9.50% in April
UK = 8.00% in March

Argentine Stocks May be Ready for a Rebound

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After defaulting on its debt in 2001, Argentina was shunned by international investors. Last year, Argentina was booted from the MSCI Emerging Markets Index. However the economy of Argentina may be ready for a rebound and catch up with the growing Latin American economies of Brazil and Colombia. In2001, Colombia was considered a failed state but since then the stock market has shot up fifteen times. Similarly Brazil could not service its debt in 1999 but now is the region’s and also one of the world’s red-hot emerging markets.

According to a recent article in Bloomberg Businessweek some investors are betting on a strong recovery in Argentina. The Merval stock index is up 163% since the credit crisis lows in November 2008.

Merval-Index-Performance

Some of the reasons for the optimism mentioned in the article include:

  • The Argentine government is trying to raise cash and build good relations with global creditors ahead of the presidential elections in 2011. After the rescue of Greece with an estimated $1 Trillion package, the outlook for Argentine debt swap deal is positive.
  • The outlook for the export of agricultural products to other emerging markets is high
  • Due to the availability of plenty of fertile lands, 54%  of Argentina’s export is agricultural
  • Publicly-traded banks are attractive compared to peers in the region

In terms of investment opportunities, there are a few ADRs that investors can consider. BBVA Banco Frances (BFR) has a market capitalization of $1.1B.The current yield on its ADR is 0.98% and the beta is 1.5. Banco Macro(BMA) pays a dividend of 2.38%. Oil and natural gas company YPF SA (YPF) is down about 18% YTD. The current yield is 7.94%. Telecom services provider Telecom Argentina(TEO) has a 11.04% dividend yield. Some of the other Argentina ADRs to review include oil and gas producer Petrobras Energia SA (PZE), food producer Credud (CRESY)and electric utility Edenor(EDN).

How To Invest In Foreign REITs?

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Outside of the U.S. the REIT industry is still  in its infancy. For investors looking to diversify their portfolios REITs offer an opportunity to gain exposure to a different asset class. A simple and easy way to invest in foreign REITs is via ETFs.

Foreign-focused ETFs with their distribution yields as of May 27, 2010:

SPDR DJ International Real Estate ETF(RWX)
Distribution Yield: 3.97%

SPDR Dow Jones Global Real Estate ETF(RWO)
Distribution Yield: 3.60%

Cohen & Steers Global Realty Majors ETF(GRI)
Distribution Yield: 4.69%

iShares S&P Developed ex-US Property Index Fund(WPS)
Distribution Yield: 5.01%

iShares FTSE EPRA/NAREIT Asia Index Fun(IFAS)
Distribution Yield: 5.03%

WisdomTree International Real Estate Sector Fund(DRW)
Distribution Yield: 9.47%

Claymore/AlphaShares China Real Estate ETF(TAO)
Distribution Yield: 3.34%

iShares FTSE EPRA/NAREIT Europe Index Fund(IFEU)
Distribution Yield: 3.09%

Some of the emerging countries such as China and India have real estate bubles. However there many countries such as Brazil, Malaysia, etc. where the demand for housing is booming and prices are affordable. Hence investors can allocate a small portion of their assets to foreign REITs.

Disclosure: Long RWX