Capture EM Dividend Growth With These Stocks
This year has been kind to dividend investors. Boosted payouts totaling $12 billion in the second-quarter alone speak to that fact. Despite the rising dividend tide, investors still have a tendency to focus on the usual suspects -- domestic stocks.
Perhaps it is a case of safety in familiarity or maybe it is the spate of negative headlines from foreign markets that have kept dividend hunters in the U.S. focused on domestic stocks. That does not mean there are not dividend opportunities to be had abroad. In what may come as a surprise to some investors, emerging markets equities are becoming players in the dividend game.
Citing a UBS report, the Financial Times reports the 300 largest non-financial firms in the MSCI Emerging Markets Index are expected to pay $52.2 billion in dividends this year, up from $48.9 billion last year. The MSCI Emerging Markets Index is the index tracked by the Vanguard MSCI Emerging Markets ETF (NYSE: VWO) and the iShares MSCI Emerging Markets Index Fund (NYSE: EEM).
Those are the two largest emerging markets ETFs as ranked by assets, but neither can be described as a "high yielder." VWO yields almost 2.3 percent while EEM yields nearly 2.1 percent. Broadly speaking, emerging markets equities still trail developed world equivalents in terms of payouts, but there a few dividend standouts in the developing world. Consider the following:
A South American Banking Star
Several years removed from the financial crisis, it is still a task to find decent yields with major U.S. bank stocks. For example, the average yield of J.P. Morgan Chase (NYSE: JPM) and Wells Fargo (NYSE: WFC) is three percent. Not bad, but not as good as the 3.1 percent offered by Banco Santander Chile (NYSE: BSAC).
There is risk attached to Banco Santander Chile and much of it stems from the bank's name. The largest Chilean bank has to deal with a guilt-by-association situation because its parent company is downtrodden Banco Santander (NYSE: SAN), the Spanish banking giant that has been taken to the woodshed due to the European sovereign debt crisis.
Despite the cautionary tale, there are some facts that bolster the bullish thesis for Santander Chile. Asset quality has steadily improved in the past year while non-performing loans have declined. Speaking of non-performing loans, Santander Chile's coverage ratio is almost 98 percent, a level that is stellar compared to the parent company.
Santander Chile has "a tier one capital ratio of 10.4 percent which is well above the required minimum of 6 percent and marginally higher than the 10 percent," according to independent analyst Caiman Valores. The bank pays an annual dividend that usually amounts to 60 percent of post-tax profits, a far better deal than most U.S. banks offer.
Dial Up The Philippines
Western investors have started to catch on to the strength offered by the Philippines this year as it is no longer a secret that this has been one of the best emerging markets in 2012. To that end, the iShares MSCI Philippines Investable Market Index Fund (NYSE: EPHE) has been one of the best-performing country-specific ETFs this year.
Beyond EPHE, getting direct exposure to the Philippines is tricky for U.S. investors, but Philippine Long Distance Telephone (NYSE: PHI) is another credible option. The stock, which is EPHE's third-largest holding, has jumped 11.6 percent this year. When it comes to yield, Philippine Long Distance's 3.1 percent yield will not have anyone confusing the stock with AT&T (NYSE: T).
In terms of performance, investors should not confuse Philippine Long Distance with Verizon (NYSE: VZ). The former has outpaced the latter by 450 basis points this year.
A South African Surprise
When most investors think about investing in South Africa, Africa's largest economy, the conversation usually revolves around precious metals such as gold, palladium and platinum. Do not overlook energy and chemicals producer Sasol (NYSE: SSL), which yields nearly 4.5 percent.
Year-to-date, shares of Sasol have fallen over seven percent and that decline is due in large part to Sasol's status as a coal producer. Depressed natural gas prices have not helped matters, either, as Sasol produces that commodity as well.
Sasol currently trades for less eight times forward earnings and a payout ratio of less than 40 percent indicates the balance sheet is not being strained by the dividend. More importantly, the company has a return on assets of over 15 percent and revenue has grown by 16.5 per over the past year, no small feat given the state of the global economy.
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