The markets are tapping new highs and shell-shocked investors are doing two things:
1) Coming in off the sidelines; and,
2) looking for dividend stocks in a zero-rate environment.
Unfortunately, many U.S. choices are “bid” up right now. Having run 144% off the March 2009 lows, the easy money’s been made. U.S. Treasuries offer 1.77% over 10 years and the average S&P 500 stock is generating a mere 2.01%.[ad#Google Adsense 336×280-IA]So look overseas.
Right now global yields average 3%.
In Europe where the markets are still struggling, it’s 4%.
But act quickly, the difference is going to disappear sooner than most people think.
I say that because the old adage “don’t fight the Fed” now applies on a global scale.
Five years into the Financial Crisis, it’s “don’t fight the Feds” as in plural. Not only is Bernanke in an accommodative mood here in the U.S., but so are his counterparts Mario Draghi who heads up the ECB and Haruhiko Kuroda who’s leading the charge at the Bank of Japan.
Longer term, we all know how endless money printing is going to end – badly – so let’s take that off the table for purposes of today’s article. Setting up for profits in the short term is more important.
Play the right sectors, the right central bank and the right regional growth and you could have a hefty appreciation kicker to boot.
Here are three solid choices:
Choice #1: Telstra Corporation Limited (OTC: TLSYY): Founded in 1901 and based in Melbourne, Australia, the company provides telecommunications and information services in Australia and around the world. Spanning the user spectrum – pun absolutely intended – the company provides everything from voice and data to broadband, cloud computing, and even entertainment.
Telstra provides 4G service to more than 2.1 million customers and is the most popular 4G network in Australia. That may not sound like all that much when viewed in the context of U.S. numbers, but 2.1 million users works out to nearly 10% of Australia’s population of 23 million people.
In an era of 3G, 4G advertising induced numbness, it’s easy to dismiss this but that would be a mistake. The emphasis on 4G means the company is squarely in front of the huge growth in interconnected smart devices that’s expected to top seven billion by the end of this year by CISCO’s estimates.
The other really important thing to consider when it comes to Telstra is just where in the world it sits – literally. In a sign of the times that makes it very clear who’s driving things over there, the government just signed a $30 billion currency swap with the Chinese. I think that’s going to drive top-line revenues as the economic momentum builds.
Telstra finished FY/2012 with $5.3 billion cash so the company has plenty of firepower to pay dividends and grow. Many U.S. companies don’t have that luxury at the moment.
Telstra’s yield is a healthy 5.42% as of [Tuesday].
Choice #2: ABB Ltd (NYSE: ABB): Founded in 1883 and based in Zurich, Switzerland, ABB is a power player – just can’t stop with the puns today – in the global power and power automation markets.
For many investors, the notion of investing in power equipment is like watching paint dry – boring. But that’s not the case here.
Global infrastructure spending is expected to be $40-$50 trillion between now and 2030. Power production and transmission alone is going to account for $9 trillion over the next 25 years, according to the IEA.
So believe the stories about slowing growth at your own risk. Urbanization, emerging markets and simple demand aren’t going to stop any time soon.
ABB currently sports a $29.6 billion backlog with contracts literally around the world; many are in China, Asia and other high-growth regions. As of the end of the most recent quarter, it’s sitting on $7 billion in cash.
What’s more, the company’s recent $0.738 dividend payment represents a 685% increase over its May 2007 dividend of $0.094 – that kind of dividend growth simply knocks the socks off other dividend players at the moment.
ABB’s yield is 3.2% yield at the moment.
Choice #3: iShares Dow Jones International Select Dividend Index (NYSEArca:IDV).
Many investors get understandably nervous at the thought of buying individual companies in today’s markets. If you’re one of them, consider this ETF.
It’s designed to track the performance of the Dow Jones EPAC Select Dividend Index. The fund sector breakdown includes weighting of 20.4%, 14.7%, 13.06%, 12.85%, 11.99% and 9.77% in financials, oil and gas, industrials, utilities, consumer staples and telecommunications, respectively.
My one hesitation with IDV is that 33.6% of IDV’s geographic breakdown comes from European heavyweights, United Kingdom, France and Italy, all three of which are still an economic mess.
However, there is a bright spot. While you may have some volatility inherent in IDV as a result of the heavy European exposure, the shares are relatively cheap at the moment because of it. Therefore, buying now may offer a chance to get in while everybody has their backs turned.
IDV is trading with a PE of just 11 versus iShares MSCI EAFE Index (NYSEArca:EFA), which is trading at 13x earnings.
Why’s that important?
Historically, stocks purchased at lower valuations tend to outperform those purchased at higher valuations. Since the March 2009 lows, for example, IDV has gained 141.09% versus a 92.08% gain from EFA, over the same time period.
It’s worth noting that IDV’s 4.85% yield positively clobbers the 2.99% yield offered by EFA.
In closing, I want to leave you with one final thought.
Endless stimulus is ultimately self-defeating but growth, especially when driven by trillions of dollars in economic need is not. It may slow down. It may be fragile. It may even go backwards for a time.
But growth will not stop…
…that’s why it makes sense to keep your money in motion – albeit very deliberately and very cautiously with choices like those we’ve covered today that offer cold, hard cash as compensation for the risk you take in owing them.
— Keith Fitz-Gerald[ad#newsmax-article]
Source: Money Morning