Knowledge is Power:Dividend Investing,Dividend Aristocrats & Achievers Edition

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dollar-sign.jpgWhy dividends matter to investors: Seed

The ‘Four Percent Rule’ for Dividend Investing in Retirement

MoneySense magazine: Canada’s Top 100 Income Trusts and 100 Dividend Yielding Stocks

Dividend sustainability more important than high yield, argue equity income managers

Two great high-yield stocks that now look even better

Want Income? Catch These Dividends Now

Download in Excel: Mergent’s 2010 Dividend Achievers Lists

S&P Dividend Aristocrats:

S&P 500 Dividend Aristocrats

S&P High Yield Dividend Aristocrats

S&P/TSX Canadian Dividend Aristocrats

S&P Pan Asia Dividend Aristocrats

S&P Europe 350 Dividend Aristocrats

Emerging Vs. Developed Markets: Decoupling is Still Dead

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The theory that emerging, frontier markets are decoupled from developed markets in terms of performance is still dead. The chart below proves this point:


Souce: The Hindu Business Line

During the past couple of years investors worldwide learned that emerging markets and developed markets are not decoupled from each other. In fact, emerging markets went down more than markets in the developed world during the credit crisis. The notion that somehow emerging markets follow different dynamics and are not dependent on the U.S. economy was put to the test and it failed. This logic appears to be the case even now as the chart above shows.

Stocks in India re moving in lock step with global markets.In the past 3 months however they have started to decouple a bit from the performance of Chinese markets. India, BRIC and emerging markets are still closely related to the US markets based on the data for the first three months of this year.However Chinese equities are showing some variance from global markets primarily due to the Chinese government’s policies to cool down the over-heated economy and rein in liquidity.

Related ETFs:
MSCI Emerging Markets Index Fund (EEM)
iShares MSCI EAFE Index(EFA)

Four Closed-End Funds for Current Income and Capital Growth

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Closed-End funds can be used as one type of vehicle for earning current income and capital growth. Similar to ETFs, mutual funds, Closed-End funds can also be used to gain exposure to overseas markets which are difficult to access for foreign investors.

The following are some of the advantages of Closed-End funds:

  • Opportunity to buy at a discount
  • Efficient portfolio management
  • Ability to control market price and timing
  • Leverage potential
  • Lower expense ratios
  • Clear Commissions
  • No minimums

Source: Closed-End Fund Association 

Along with the usual risks associated with investment in equity markets such as market risk, inflation risk, political risk, etc. Closed-End funds can also be highly volatile during adverse market conditions due to their structure.

The following four Closed-End funds that offer potential for Income and Capital Appreciation:

1. ING Global Equity Dividend and Premium Opportunity Fund (IGD)
This fund pays dividend monthly and invests about 41% of portfolio in the US markets and the rest in foreign equities. The annual distribution yield is 11.79%.  Financials form about 20% of the portfolio. The fund also uses call and put options to manage risk and enhance returns. The net asset base is $1.1B and the fund is currently trading at a  premium of 8.35% to NAV.

2. ING International High Dividend Equity Income Fund(IID)
This CEF also pays dividend monthly. The current annual distribution yield is 10.76%. The fund invests in high-dividend-yield stocks or derivatives with 50% of portfolio in European securities, 40% in Asian Pacific equities and the rest in other equities. The net assets of the fund is $86M and the fund is now trading at a premium of 17%.

3.ING Asia Pacific High Dividend Equity Income Fund(IAE)
This fund invests in 75-100 high-yielding Asia-Pacific stocks. To enhance returns the fund also sells call options on select Asian-Pacific equities or indices. The fund has net assets assets of $208M and the annual distribution yield is 9.58%. In 2009, the fund’s market return was about 87%. Currently the fund is trading at a 4.58% premium. Australia, Hong Kong and South Korea have the highest weightings in the portfolio. Dividends are paid quarterly.

4. ING Global Advantage & Premium Opportunity Fund(IGA)
This CEF has an asset base of $242 M and the annual distribution yield is 10.42%. This fund invests 60% of portfolio in US equities and the remaining in foreign equities. The fund also uses call options to enhance returns. Because this fund is heavily concentrated in the US markets, the fund’s market return in 2009 was 41%. Dividends are paid quarterly.

Review: Singapore and Hong Kong Bank ADRs

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Asian banks emerged strong from the credit crisis and are now growing again. Most Asian banks follow conservative policies and have low NPAs. In addition, they tend to concentrate on traditional banking services as opposed to investment banking and trading securities.

Two banks each from Singapore and Hong Kong trading on the OTC markets in the US are listed below:

1.Hang Seng Bank Ltd (OTC:HSNGY)
Hong Kong
Current Dividend Yield: 6.99%

2.Bank of East Asia (OTC: BKEAY)
Hong Kong
Current Dividend Yield: 3.39%

3. United Overseas Bank Ltd (OTC: UOVEY)
Singapore
Current Dividend Yield: 1.96%

4. DBS Bank Ltd (OTC: DBSDY)
Singapore
Current Dividend Yield: 3.84%

Besides having a presence in many international markets, Bank of East Asia operates 70 outlets in China. During the credit crisis, there was a scare that this bank may fail. But that did not materialize and the bank survived. Hang Seng is one of the large banks in Hong Kong with a rich history. Unike many developed countries, Singapore did not have to inject capital into any banks during the crisis and Singaporean banks are some of the strongest financial institutions in the world.United Overseas Bank and DBS are two of the large banks in Singapore. Both are well-capitalized and have operations in many of the emerging markets in Asia. For example, the Tier 1 ratio of DBS Bank is a healthy 13.1%. Investors hunting for growth and yield in Asian bank stocks, may consider the above mentioned four banks.

Who Benefits the Most from Tax Cuts?

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Last September Forbes magazine published The Richest People in America. From the report:

“America’s super rich are getting poorer. For only the fifth time since 1982, the collective net worth of The Forbes 400, our annual tally of the nation’s richest people, has declined, falling $300 billion in the past 12 months from $1.57 trillion to $1.27 trillion.”

In a related note titled “Capitalism: A True Love Story” Steve Forbes wrote:

“–A pro-growth tax system. Taxes are a price and a burden. Low tax rates on income, profits and capital gains foster more risk- taking and higher growth, bringing about a richer economy with a higher standard of living–along with higher government revenues.”

One of the reasons, the wealthy stay wealthy and continue to multiply their wealth despite the boom and bust cycles in the economy is due to tax cuts.

During the Bush Administration, the wealthy enjoyed significant tax cuts. The 2001 tax package cost the federal government $1.3Trillion in lost revenues according to Congress’ Joint Committee on Taxation. The tax cuts had an uneven effect on different groups of taxpayers. The wealthy benefited greatly as a result of the cuts while others did not.

The following chart shows difference in income growth between the rich 400 American households and the rest between 1992 and 2007.

Income-inequality-USA

Source: Economic Policy Institute

The figures noted in the graph are inflation-adjusted. The pre-tax income of the 400 households grew by 409%. The equivalent after-tax income growth during the same period totaled a whopping 476%. This is because tax rates applied to their income had fallen by a third.When capital gains and dividend income taxes were reduced dramatically during the previous administration it helped the wealthy preserve and grow their wealth even more.

During the same 15-year period, the pre-tax median household income of the majority of Americans grew by just 13.2%. Despite the dot com boom, the financial crisis, housing bubble and other events the wealthy thrived while the rest of Americans lost out again.