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Four Income Hotspots For a Prosperous
New Year |
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-- By
Andy Obermueller |
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While most economists agree that the United States will
rise out of its recession in the second half of 2009, many of the
world's countries aren't in recession at all. In fact, there are
quite a few places where things are outright booming. Not only
did these countries fare better economically in 2008, they're going
to post strong growth in 2009 and through 2010 as well. What's more,
stocks in these countries are cheap and, best of all, each of these
countries sports a higher-than-average dividend.
You can have it all; you just need to know where to
look to find it. In today's issue, we'll visit four countries with
robust growth, low valuations and above-average dividends -- think
of it as the trifecta for 2009.
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Four Income Hotspots For a Prosperous New Year
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Investing in companies that do business in soft economies is
like buying a house in a bad neighborhood. The chances that
a company will do well move in tandem with its access to
customers, capital and opportunity. That's found in vibrant
economies, not in stagnant ones. All other things being
equal, it's better to invest in companies that operate in
countries
where prosperous people want to live, work
and shop -- just like what you'd look for in a good
neighborhood.
That being said, you want to make sure you don't pay
too much for the house. A real estate agent will check
prices in the area to get a sense of what a property is
worth. Well, investors can do the same thing in the stock
market. You can ascertain valuation by looking at the
earnings multiple of any country's benchmark average and
comparing it to historical averages.
A dollar of net
earnings from a U.S. company, for instance, currently costs
$16.60, as indicated by the S&P's average P/E of 16.6.
The average P/E on Russia's MICEX is 3.2; a dollar of earnings from a Russian company costs
$3.20. Which is a better deal? Well, the S&P
may be close to being fairly valued, based on its history. The
MICEX, on the other hand,
is drastically undervalued compared to its historical
valuation, which
suggests far greater upside.
Now, if you were looking at investing in a rental property, you might
not really care where it is as long as you earned a strong
return. That's a smart way to look at dividends, too. If a
company has a strong business and a solid financial footing,
who cares if it's in Timbuktu -- especially if it's paying
8%... 10%... or more? Some of the highest dividends in the world can be found
in smaller countries tucked away on the far side of the
world.
So let's take a look at
four locations that offer all three of the characteristics
we discussed above: low valuations and strong yields in
growing economies.
Czech Republic
This Eastern European nation of 10 million people is one of
the most stable and prosperous in Europe. It posted
+4.2% growth in 2008 and is expected to see +3.0% growth
this year and +3.4% next year. Czech stocks are
trading at 6.9 times earnings, -55.2% below their typical
valuation of 15.4. The average dividend yield on the
Prague Exchange is a robust 6.6%, miles above the S&P 500,
which yields 3.0%. After only 10 years, Czech stocks
will have earned $13,775 more than U.S. stocks for every
$25,000 invested, just in dividends alone.
Taiwan
 This tiny nation continues to
benefit from its proximity to China, one of the most
booming economies in the world. Its market lost
-42.9%
in 2008 as the world sold equities and trampled on
Asian issues they thought would be adversely
affected by the downturn. Still, Taiwan, with its
strong export economy, posted enviable
+4.0% growth in 2008 and is on track to grow an average
+3.5% in 2009 and 2010.
Taiwan's stocks are a steal on a valuation basis. They're
selling for a mere 9.6 times
earnings, way beneath the five-year average of 16.7 for the
benchmark Taiex. And the average dividend yield for the
index is a whopping 8.1%, so you're making good money while
you wait to capture huge capital gains.
South Africa
 South Africa is part of the world
that is most often overlooked by investors. Many are
familiar with Asia because of the rise of China or
with South America because of the emergence of
Brazil. But Africa is still largely unknown to
investors.
That's too bad. South Africa
will likely replicate its '08 growth of +3.4% this year and
see a +5.3% expansion in 2010. Its average dividend is a
respectable 4.4%, and stocks are roughly -32% off their
historical valuation of 12.6 times earnings. South Africa is
thought of as an emerging market, but with mature banking,
energy and legal systems, as well as modern infrastructure,
South Africa doesn't seem like a third-world country. Its
returns for the foreseeable future will be the envy of most
countries in the "developed" world.
Chile
The biggest vote of confidence
for this country has come from Wal-Mart (NYSE: WMT), which
recently announced plans to spend $2.8 billion to
acquire the thin country's largest grocery store
chain. Wal-Mart doesn't do anything that doesn't
make the company money. And its due diligence evidently
turned up what we found: Namely, Chile is a South
American gem that posted +3.9% growth in '08 and will see
+2.8% growth this year and +3.8% growth next. There is not a
single country in Western Europe that will even come close
to that. What's more, Chilean equities are trading for 12.5
times earnings, a fire sale given the nation's average of 20
times earnings. One of the best ways to invest in Chile is
in its largest bank, Banco Chile. It's not only yielding
more than 12%, but its shares trade on the New York Stock
Exchange -- you can buy them under the ticker BCH today,
without opening a special international trading account!
As always, many happy returns!
-- Andy Obermueller
Co-Editor
Global Dividend Opportunities
GlobalDividends.com
839-K Quince Orchard Blvd.
Gaithersburg, MD 20878-1614
P.S.
-- Don't miss a single issue! Add our address,
Research@GlobalDividend.com,
to your Address Book or Safe List. For instructions,
go
here.
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Notes
Standard & Poor's cut GE's outlook to "negative" last month
because of concerns about GE Capital's "future performance and
funding." Both companies have the top "AAA" rating.
GE
may
have to choose between its "AAA" credit rating or its dividend,
said Nicholas Heymann, an analyst with Sterne Agee & Leach. GE
chief Jeff Immelt has said the company is committed to its
dividend. Shares currently yield 7.4%
-- From Bloomberg reports
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With the economic outlook
unsettled, some are remaining on the
conservative side. Among them: Harris Investment Group's James Cox, who
points to high-dividend-paying stocks such
as large pharmaceutical companies.
Pfizer, for instance, has an indicated
dividend yield of 7.2%. Bank stocks are even
more generous, with Citigroup and Bank of
America offering dividend yields of 9.5% and
9.0%, respectively.
"It's going to be the year of yield," Cox
said.
--
The Wall Street Journal
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