|
What's the first thing that pops into your mind when you
hear "Standard & Poor's"? It's likely the benchmark S&P 500
Index.
But there's so much more that Standard and Poor's has to
offer.
A
couple of weeks ago I told you about the S&P's High
Yield Dividend Aristocrats Index, an income index that has
outperformed the S&P 500 for a decade. But what else does
Standard and Poor's have up their sleeve, especially for income investors?
How about one of the greatest tools you can use to uncover international income investments?
The Smart Way to Find International Income
It pays to look abroad for income investments. According to
Bloomberg, nearly 240 foreign companies have yields between
12-25% and were profitable during the past 12 months. Compare
that to the 24 such companies found in the United States.
But even if you know you should be looking abroad for
income, figuring out a good place to start your search is a
trial in of itself.
Why not let Standard and Poor's give you a head start?
That's where the
S&P International Dividend Opportunities
Index comes into play.
|
Top
Ten Index Holdings |
|
Kon Bam Groep (Netherlands) |
|
Bendigo & Adelaide (Australia) |
|
Bank of Queensland (Australia) |
|
Wesfarmers (Australia) |
|
Nat. Australia Bank (Australia) |
|
Mediaset (Italy) |
|
Orion Corporation (Finland) |
|
Inter Pipeline (Canada) |
|
Portugal Telecom (Portugal) |
|
Rwe Ag (Germany) |
The index is your ticket to 100 of the highest-yielding
stocks from outside of the U.S. To make the index, companies
must trade on a major exchange and have a market cap of at
least $1.5 billion, with average daily trading volume of at
least $5 million.
Companies also have to demonstrate a proven ability to pay
dividends. All stocks must have positive earnings growth
over the past five years, and all stocks must have been
profitable over the past 12 months.
Once chosen, the highest-yielding stocks carry the largest
weightings and no one country can represent more than 25% of
the index. Top countries on the list make up a "who's who"
of international income nations. Over 50% of the index's
value as of the end of September was made up by Australia,
Canada, Italy, Spain and France.
But does the index's strategy of selecting foreign dividend
payers actually work?
In a word, yes. On top of an average dividend yield of 7.8%
(as of June 30th), it has averaged a stellar return of
+13.9% annually over the past 10 years. This blows away an
average annual return of -0.15% over the same period for the
S&P 500. Year-to-date returns through September 30th are
equally sharp: +60.5% for S&P International Dividend
Opportunities Index versus +19.3% for the S&P 500.
If you simply want to track the performance of this index,
it's as easy as can be. The
SPDR S&P International
Dividend ETF (NYSE: DWX) is an ETF that tracks the index
step for step.
But there is another, more lucrative way you can use the S&P
International Dividend Opportunities Index to your
advantage.
In the hunt for higher yields, you can replace the common
shares listed in the index with a higher-yielding preferred
stock or an exchange-traded bond that a member company may
have issued. For example, Bank of Montreal (NYSE: BMO) has a
great long-term dividend track record and a hefty yield of
around 5%. But the company's U.S. subsidiary, Harris Bank,
also issued preferred shares (NYSE: HBC-P) denominated in
U.S. dollars that are now yielding over 8%.
There is one caveat to watch for.
For companies included
in the index, yields are calculated on a trailing 12-month
basis, so you need to check out how the dividend is faring
today. For example, U.K. banking giant Barclays ADR (NYSE:
BCS) was recently assigned top billing before the portfolio
was rebalanced. It did indeed carry an incredible trailing
12-month yield of 14.4% and met all of S&P's profitability
requirements, but the company suspended its dividend during
the financial crisis.
A quick check of the current payment can ensure you sidestep
this easy-to-spot pitfall.
Good Investing!
-- Carla Pasternak
Chief Investment Strategist
StreetAuthority High-Yield International
P.S. Carla Pasternak's High-Yield International picks
have been on fire. All 31 of them are up, one as much as
+188.3%. How is she doing it?
Go here to find out.
|
