Investing in Emerging Market Dividends

by Carl Delfeld

Because of lackluster stock returns, rock-bottom interest rates and aging baby boomers hungry for income, investors are rightfully focusing on stocks with a high and rising dividend record.

This is why the timing of Marc Lichtenfeld’s new book, Get Rich with Dividends, couldn’t be better.

I’ve always been impressed with Marc’s versatility as an analyst. He’s a great growth stock picker, and also develops winning income strategies. Marc’s book combines both of these with the proven strategy of buying growth stocks with a rising dividend record. This is a dependable and conservative growth strategy backed up by solid research that shows dividends account for about half of stock returns.

Thinking of Marc’s experience as a ring announcer for world championship boxing, I refer to this as his one-two punch strategy.

You’ll need to buy this book to learn how to execute Marc’s specific strategy, but let me give you a couple of ideas to get started.

Marc dedicates an entire chapter to foreign stocks, which focuses on investing in international dividend payers. Marc rightly points out that international and emerging market stocks often have higher-yield stocks, but have an inconsistent dividend record. And then there are the risks associated with currency conversions…

How can an investor sort through all of these international stocks and pick those with the highest and most consistent dividend record?

A great choice to get started would be Powershares International Dividend Achievers (NYSE: PID). To get into PID’s high dividend basket, international stocks must have a sterling dividend growth record: five consecutive years of dividend increases.

Next, I highly recommend WisdomTree Emerging Markets Equity Income (NYSE: DEM), which is a basket of the highest dividend-paying emerging market stocks. As you might expect, it outperforms in weak markets and underperforms in strong markets. This lower volatility is just what I think most investors are looking for in emerging markets, and the proof is in the pudding.

But in addition to lower volatility, it consistently outperforms the leading emerging market index. Just take a look at the chart below comparing DEM with the most widely used emerging market ETF in the world, iShares MSCI Emerging Markets (NYSE: EEM).

You can see that during the past five years, DEM outperformed and ended in the black while the much larger and famous EEM ended its volatile ride in the red. The index that DEM aims to track has a current dividend yield of 4.07% (actual yield may differ).

Investing in Emerging Market Dividends

DEM has a three-year annualized return of 14.5%, compared with 9% EEM. This performance is attracting assets with DEM seeing net inflows of over $220 million since June 1 with total assets approaching $4 billion.

Stocks in the DEM fund are weighted not by market value but by dividend yield. Importantly, the basket is rebalanced every June. This allows the fund to kick out stocks that have lowered their dividend, as well as more expensive stocks, and add some new companies to the mix.

The recent June rebalance resulted in DEM increasing exposure to China and Russia, two beaten-down markets. The fund currently has 21.2% in Taiwan, 14.2% in Brazil, 14.2% in China and 13.8% in Russia.

Get Marc’s book today and get going on building a dividend rich portfolio. And don’t forget to add some international stocks to the mix; their dividend yields are higher than U.S. stocks and should lead to lower portfolio volatility.

Good Investing,


P.S. To find out more about Marc’s dividend investing strategy and his new book, click here.

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Finding Foreign Dividends…

In today’s article, Carl reveals two of his favorite ways to invest in foreign dividend stocks. And those two are great for securely spreading your risk over many regions and sectors.

But the price you pay for safety is that you also somewhat limit your yield and returns…

So Carl wanted to provide one of his favorite foreign dividend-paying stocks to Plus readers – Banco Latinoamericano de Comercio Exterior, more commonly known as Bladex (NYSE: BLX).

The company currently yields a healthy 4.6%, but what’s really attractive about Bladex is its value. The company is trading very slightly above its book value of $20.79 a share, and its price-to-earnings-growth (PEG) ratio is just 0.26.

Here’s why Carl is so high on the company and its stock:

“My case for Bladex is that its core business is steady and safe: trade finance, which should grow nicely with increased [Panama] canal traffic.

“The bank sharply expanded business with key fast-growing South American partners like Chile and Peru in recent years (thanks in part to Panama inking its own bilateral trade agreements). And a major goal for Bladex is to increase fee business from asset management and private banking.

“The firm seems well on its way in that department. Bladex’s deposit balances grew 35% in the third quarter, compared to year-ago levels, to a record $2.49 billion. And fee income nearly doubled, to $3.7 million.

“Bladex is down 10% this year while emerging markets as a group are down about 20%. And the stock sports a nice 4.5% dividend yield, so you’re paid nicely while waiting for emerging market sentiment to turn around, and revenue from the enlarged canal to start flowing in.

“But I have another reason why I like Bladex’s prospects…

“Back in my days as a rookie banker at Banco de Boston, Panama was even then a destination for a lot of money and trade flowing between North and South America. But the missing piece of the economic puzzle has always been a preferential free-trade deal with the United States. Well, that long-awaited agreement (first put on paper in 2007) was finally ratified by the Senate and signed by President Obama last October.

“You can expect Bladex (and indeed, the entire country of Panama) to see large benefits from this free-trade pact. Not only does it liberalize commercial services like banking, it removes the bulk of tariffs for U.S. agricultural and industrial products. For Panama, it means a great deal more business will come its way from the United States (and Canada, which nailed its own free trade pact in 2010).

“For a key financial institution like Bladex, more business equals more revenue, more profits – and higher net income growth for shareholders.”

– Justin Dove with Carl Delfeld

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