Asian stocks beat U.S. equities on dividends? Who knew?
High dividend yields are showing up in some unexpected places. Like Asia.
If you think anything like I did just a scant few months ago, you wouldn’t dream of looking to Asian stocks for high dividend yields. Most likely, you think of them like I did, as resembling the technology sector: Lots of growth but no yield.
Well, I was wrong and if you think like that you’re missing an increasingly important source of high dividend yields. (By the way, technology stocks pay dividends too these days. Check out Intel (INTC) to see what I mean.)
Here’s the data from the Matthews Asia Dividend fund (MAPIX) that opened my eyes. “Based on consensus estimates, the projected dividend yield for 2010 of the MSCI AC Asia Pacific Index of 2.5% exceeds the 2.0% expected of the MSCI U.S. Index,” the fund’s managers wrote in their December 31, 2009 report. In other words Asian stocks out-yield their U.S. counterparts.
And the Asian yield story looks like it’s got a way to run. In China, for example, total dividend payments grew to $73 billion in 2008 from just $8 billion in 1998, according to the December 31 report from another Matthews fund, the Matthews China Dividend Fund (MCDFX). And $57 billion of the $73 billion in dividends paid out in 2008 came from companies that went public after 1998. Even recently public companies in China, it seems from the data, are paying good dividends.
Why haven’t dividend investors stocked up on these higher Asia yields? (In the process driving yields down, of course.)
Buy Navios Maritime Partners (NMM)
With the global economy in solid recovery mode—for example, the U.S. economy will grow at a 2.4% rate in the first quarter of 2010 and at a 2.3% rate in the second quarter (not great but a long way from recession) according to the OECD (Organization for Economic Cooperation and Development)—I think it’s time to reach a little further for yield.
Navios Maritime Partners (NMM) is a cyclical stock subject to huge ups and downs with the ebb and flow in global demand for commodities such as iron ore, coal, and grain. But it looks like we’re now in the flow part of the cycle: Revenue at Navios climbed to $93 million in 2009 from $75 million in 2008, and earnings per unit look to have, at worst, stabilized with Wall Street analysts forecasting a mere 1.3% decline for 2010 to $1.64 a unit. That’s enough to cover the $1.62 current distribution that gives the units a 9.1% yield.
Sell Sysco (SYY)
I’m selling Sysco (SYY) out of my Dividend Income Portfolio with this post.
The stock made a new 52-week high yesterday, April 6. That brings the dividend yield down to 3.38%. That was attractive when the economy recovery still seemed iffy and I was willing to trade some yield for safety.
But now that the recovery is more certain—if not the speed or momentum of the recovery (for more on those issues see my post http://jubakpicks.com/2010/04/05/so-yes-weve-got-an-economic-recovery-but-how-strong-is-still-an-open-question/ –I’m willing to stretch a little more for yield. To do that I need to clear a slot in this 10-stock portfolio and that means selling Sysco.
Update Sysco (SYY)
On February 1 Sysco (SYY) reported earnings of 45 cents a share for the company’s fiscal second quarter. That was 3 cents a share above Wall Street projections. Revenue for the three months that ended in December 2009 was $8.87 billion, roughly matching analyst expectations for $8.83 billion.
The most encouraging news in my opinion came on operating margins.
Second-quarter revenue fell by 3.1% from the year-earlier period showing that the company and the economy aren’t yet out of the woods. But the company’s efforts to wring costs out of its distribution system paid off. Operating margin expanded by 0.6 percentage points in the quarter to 5.2%.
That matches the highest annual margin the company has recorded in any of the last 10 years. That bodes well for earnings and earnings growth as the U.S. economy picks up steam. Higher revenue at a higher operating margin would give an extra boost to earnings and the company’s continued cost-cutting should lead to gains in market share as it takes business from less efficient food service companies or buys them out right. Food service is still a very fragmented industry: Sysco is the biggest player by far at 15% market share. (The No. 2 company has a 10% share and the third largest just 3%.)
The company’s board of directors seems to have faith in that scenario. Sysco raised its quarterly dividend by a penny a share (a 4% increase) to 25 cents payable to shareholders of record on December 31, 2009. (I added these shares to the Dividend Income portfolio on December 8, 2009.)
At an annual rate of $1.00 a year, Sysco paid a yield of 3.52% as of February 18.
Update Verizon (VZ)
When Verizon (VZ) reported fourth quarter earnings on January 26, everything was in line. There were no real surprises. And that was disappointing to investors who were looking for signs that a rising economy was lifting margins in Verizon’s legacy landline business or who were hoping for some sign that Apple (AAPL) was going to strike a deal with Verizon to sell the iPhone.
Didn’t happen.
So investors are stuck with the same old story. Which fortunately is pretty good despite its lack of surprises.
