Emerging-Market Income Options

5/5/2014


The shopping list is short for investors seeking quality U.S. stocks with big yields. Fewer than 20% of S&P 500 Index stocks yield more than 3.0% and just 10% offer yields above 3.5%.

Most of those stocks earn mediocre Quadrix Overall scores, pay out too much of their earnings to make for a safe dividend, or have subpar growth potential. With few high-yielding U.S. stocks worth buying, adventurous income investors may want to explore international markets, where income stocks have in many cases outperformed the broader market.

Consider the MSCI high-yield dividend indexes, composed of large-cap and midcap stocks with "higher than average" dividend yields that MSCI views as "both sustainable and persistent." Over the last three, five, and 10 years, high-dividend versions of MSCI's Emerging Markets Index and BRIC (Brazil, Russia, India, and China) Index have outperformed the core index. The high-yield indexes also delivered superior performance in several developed markets.

RETURNS FROM AROUND THE WORLD
MSCI high-yield dividend indexes have outperformed their broader counterparts in several developed markets this year. Although high-yield indexes in emerging markets have lagged in 2014, they enjoy superior long-term track records.
----------------- Gross Total Returns -----------------
---------- Annualized ----------
MSCI Index
YTD
(%)
1 Yr.
(%)
3 Yrs.
(%)
5 Yrs.
(%)
10 Yrs.
(%)
Developed Europe
4.5
23.0
7.0
16.0
8.3
Developed Europe High Dividend Yield
8.5
28.7
9.1
16.7
8.4
Developed Far East
(6.8)
(2.0)
4.3
9.5
3.4
Developed Far East High Dividend Yield
(0.7)
(2.4)
4.9
11.9
9.1
Developed North America
2.3
19.8
12.4
18.6
7.9
Developed N. America High Div. Yield
4.7
16.6
14.3
20.9
9.0
Developed World
2.1
17.5
9.6
16.8
7.6
Developed World High Dividend Yield
5.4
14.4
11.0
18.6
8.6
BRIC (Brazil, Russia, India, China)
(3.1)
(3.1)
(7.0)
7.9
12.6
BRIC High Dividend Yield
(4.6)
(7.3)
(6.5)
8.7
18.3
Emerging Markets
0.5
0.2
(3.3)
12.1
11.3
Emerging Markets High Dividend Yield
(1.3)
(3.1)
(1.6)
13.3
15.3
Source: MSCI.

The MSCI Emerging Markets High Dividend Yield Index, although down so far this year, has outperformed its broader counterpart in 10 of the past 13 years. It has also topped the MSCI World High Yield Index in 10 of the past 13 years. Investors seeking to track the index can purchase the Market Vectors MSCI Emerging Markets Quality Dividend ETF ($51; QDEM), but first a word of warning: We don't track this exchange-traded fund, which is barely three months old. Any fund with such a short track record, particularly one that focuses on emerging-market stocks, must be considered high-risk.

Investors with a high tolerance for risk might also find the table below interesting. We've listed five large-cap emerging-market stocks with high Quadrix Overall and Value scores. While we don't cover these stocks, they may appeal to investors prepared to do additional research.

Our recommendation: We don't recommend any pure-play emerging-market funds, but Wasatch International Growth ($28; WAIGX) owns quite a few emerging-market equities.

OVERSEAS INCOME PLAYS
The following emerging-markets stocks earn Quadrix Overall scores of at least 90 and Value scores above 60, and also yield at least 2%. The Forecasts does not recommend any of the companies, but the strong Quadrix scores suggest these stocks are a good starting point for investors interested in foreign stocks and willing to do further research.
-- Total Return --
-- Quadrix Scores --
Company (Price; Ticker)
Stock-
Market
Value
($Bil.)
Indicated
Dividend
($)
Yield
(%)
YTD
(%)
1 Yr.
(%)
Value
Overall
Country
Sector
China Mobile ($47; CHL)
190.8
2.01
4.3
(10)
(11)
99
90
Hong
Kong
Telecom
Services
Huaneng Power Int'l
($41; HNP)
14.5
1.19
2.9
14
(7)
98
99
China
Utilities
Mobile Telesystems
($16; MBT)
16.3
1.00
6.1
(24)
(13)
98
96
Russia
Telecom
Services
PetroChina ($115; PTR)
210.0
4.21
3.7
5
(6)
94
91
China
Energy
Taiwan Semiconductor
($20; TSM)
104.2
0.40
2.0
15
10
68
94
Taiwan
Technology
Note: Quadrix scores are percentile ranks, with 100 the best.

 


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